The steel industry, lithium ion batteries (“LiBs”) and expandable graphite account for 70 to 80 per cent of flake graphite demand. Steel demand has been weak since the Chinese slowdown in 2012 and has just started to recover. LiB demand was very low five or ten years ago but has been growing at over 20 per cent per year and now accounts for approximately 25 per cent of demand. As major markets such as EVs and grid storage are still in their infancy, this growth is expected to continue. The expandable graphite market while smaller, is one of the fastest growing markets along with LiBs. It involves treating XL flake graphite with a dilute acid solution and heating it to cause the flakes to split apart and increase hundreds of time in volume. This material is pressed into sheets which can be used in many applications including thermal management in consumer electronics, advanced building materials, heat and corrosion resistant gaskets, fuel cells and flow batteries. Expandable graphite is the only graphite market to experience rising prices in recent years and Chinese production of extra large flake, which is required to make it, is declining.
Currently, China produces 70 to 80% of the world’s graphite and 100 per cent of the natural graphite used in LiBs. Because of this dependence on China, as well as the importance of graphite to the economy, both the EU and the US have declared graphite a supply critical mineral.
The future direction of Chinese production will be a significant factor in determining where graphite prices go. Traditionally, Shandong Province was the center of graphite mining in China but its production is declining due to the depletion of ore reserves and stricter enforcement of environmental regulations. As Shandong was the main source of large and extra large flake graphite, production of these grades is also declining. Mining has transitioned to Heilongjiang Province and it is now the major producer. There are two main producing areas in Heilongjiang, Jixi/Mashan and Luobei, both of which produce mainly small flake.
The Jixi/Mashan region is the largest and is operating near full capacity. There do not appear to be any new mines planned or under construction. A new government owned mine was built in Luobei to serve the LiB market and is only operating at 30 per cent capacity. Also a large, new small flake mine has come on stream in Africa although it is struggling and its fate has yet to be determined. For this reason, it is unlikely small flake prices will increase in the short term until the significant growth in EVs/LiBs consumes this excess capacity.
The market for large and XL flake graphite is much more robust, in part because of declining Shandong production but also because expandable graphite is the fastest growing market along with LiBs.
Annual Chinese demand for expandable graphite is approximately 70,000 tonnes. China only produces 25,000tpa of +50 mesh flake and the balance is made up of less desirable +80 mesh flake. The demand for expandable graphite with very high expansion rates is growing even more rapidly and this requires +32 mesh flake graphite. There is currently a shortage of both +50 mesh and +32 mesh material in China as there is in the rest of Asia as well as Europe. China has now started to import +50 mesh concentrates from Madagascar.
In the short to medium term the graphite opportunity is clearly in the large/XL flake markets which are high price and high margin with supply shortages. Longer term, new western sources of small flake production will be required to meet the expected growth in the EV/LiB markets and provide security of supply.
In the second half of 2017 graphite prices increased approximately 40% after a long period of depressed prices caused by the slowdown in the Chinese economy and lower steel demand. The price increase was due to an improvement in the steel market, environmental related production shutdowns in China and continued strong growth in lithium ion battery demand. Since then prices have fallen back due to a big new mine being built in China and another in Africa. While the EV market contnues to grow strongly, it has been a case of too much new production too soon. The African mine has only demonstrated the ability to consistently operate at about 50 per cent of design capacity and has been cash flow negative since startup almost two years ago. Therefore its future is uncertain. Both these mines produce mainly small flake which is used in the lithium ion battery market. For this reason there is an oversupply of small flake which will persist until the fate of the African mine becomes clear and the promise of EV and grid storage demand are realized. The outlook for large flake prices is much better as Chinese production is declining, the African mine does not produce much and demand in industrial markets is growing. However, large flake markets are smaller and can only support one or two new producers.
EVs are not going to replace the internal combustion engine. However, there are many uses and markets where they make sense including shorter range commuting, city driving, taxis and delivery vehicles. The automobile market is huge whereas the battery minerals, lithium, cobalt and graphite, are small specialty markets. EVs only need to become modestly successful to have a big effect on the graphite market. If one per cent of the annual new car market were EVs, world flake graphite production would have to increase by about 20% and multiple new mines would be required. The proposed Tesla “gigafactory” requires up to six new mines. China alone plans on having five million EVs by 2025.
Graphene is one of the top research topics in the world with billions of dollars of funding committed. At present there is no process for making commercial quantities of graphene and there are no commercial products based on the unique properties of real graphene. Dozens if not hundreds of organizations are working on these challenges and once solved, the results could revolutionize the way we work and live. Natural graphite is one source of graphene and will probably supply lower technology applications such as conductive inks and coatings and composite materials. There are up to three million layers of graphene in a one millimeter thickness of graphite so a little goes a long way.