By Melissa Pistilli — Exclusive to Graphite Investing News
Graphite is one of two naturally-formed polymers of carbon. Unlike its carbon-polymer cousin diamond, the semimetal is an excellent conductor of heat and electricity and has the highest natural strength and stiffness of any material.
The graphite market is quickly becoming one of the hottest emerging sectors in the resource industry, and has sparked investor interest and an exploration boom. Some of the most critical factors pushing the once-forgotten mineral onto the resource investment stage include everyone’s favorite market drivers: China’s ongoing modernization and the global shift toward alternative energy.
Speaking of critical, the European Commission, the British Geological Survey, and the US State Department have declared graphite just that, in large part because it is important not only to traditional industries such as steelmaking, but also to emerging energy technologies – not to mention the fact that China has so much control over it.
Types and applications
The graphite market includes three principle types of graphite – amorphous, flake, and lump – each of which occurs in different types of ore deposits.
Historically, applications such as refractories, steelmaking, brake linings, foundry facings, and lubricants (and yes, pencils) have primarily used amorphous and lump graphite. The automotive and steel industries currently account for the majority of consumption; graphite is used to increase carbon content, which strengthens steel and allows it to withstand much higher temperatures. Demand from both industries is growing by five percent each year.
However, alternative energy technologies and applications - pebble-bed nuclear reactors, lithium-ion batteries, graphene, fuel cells, and solar panels - are also propelling demand for graphite, particularly the high-grade, large-flake variety.
One of the most promising market sectors for graphite is in the battery industry, specifically lithium-ion batteries and vanadium redox batteries.
Lithium-ion batteries are now widely used in consumer electronics, such as cell phones, laptops, tablets, and power tools, and are replacing the nickel-metal hydride batteries used in electric vehicles, electric motorcycles, and scooters. Yes, lithium is an essential part of this technology, but what its name fails to show is the important role that graphite plays in the batteries’ construction; 20 times more graphite than lithium is required in lithium-ion batteries.
As demand for consumer electronics and electric vehicles intensifies, demand for graphite for lithium-ion batteries is also expected to grow. Anticipating demand growth of 25 percent per year, analysts estimate that lithium-ion battery production could consume more than 1.6 million tonnes of high-grade flake graphite over the next decade. By 2020, annual electric vehicle production is expected to reach as high as six million units, and the battery system for each of these vehicles will require 40 pounds of graphite.
Graphite is also an essential part of vanadium redox battery technology, with nearly 300 tons of flake graphite required per 1,000 megawatts of storage. Vanadium redox battery production is expected to rise alongside of growing demand for alternative energy sources such as wind and solar. The unique properties of vanadium and graphite combined allow for the long-term storage of an unlimited capacity of excess energy, which helps to solve one of the inherent problems associated with this type of energy source: interrupted production.
The US government said last year that it would invest about $185 million in deploying and demonstrating the effectiveness of utility-scale grid storage systems, American Vanadium (TSXV:AVC) said in a report. And leading the way in new grid-scale renewable storage solutions are vanadium redox batteries.
The quality of flake graphite varies by grade and particle size, with most consumers preferring to use high-grade, large-flake graphite for their products. In fact, it’s flake size and purity that determine price. Large flake graphite (+80 mesh), with high carbon content (94 percent or greater) is the type required for use in lithium-ion batteries, and it fetches a premium. While amorphous graphite used in steelmaking has been trading at around $850 per tonne, flake graphite is selling in the range of $2,200 to $3,000 per tonne depending on flake size.
Graphite demand is quickly growing, with some analysts anticipating a rise from the current 1.1 million tonnes per year to 2.6 million tonnes by 2020. However, available supply is not witnessing the same level of growth – less than half of world production for graphite is of the flake variety, and this looming supply and demand imbalance is creating opportunities for explorers and producers alike.
“Annual flake graphite production will have to increase by a factor of six by 2020 to meet incremental lithium carbonate requirements for batteries,” said a recent Canaccord research report. Other uses are expected to strain supply as well. The US Geological Survey has said that “[l]arge-scale fuel-cell applications are being developed that could consume as much graphite as all other uses combined,” while researchers out of the University of West Virginia estimate that, once online, the next generation of pebble-bed nuclear reactors could use up the current total annual production of flake graphite – about 400,000 tonnes.
The China factor grips graphite market
Exploding demand isn’t the only factor weighing on prices. China’s “stranglehold” on global graphite supply coupled “with a generation of under-investment in mines around the world, is creating a very tight supply situation,” said Simon Moores of Industrial Minerals.
China produces more than 70 percent of the world’s graphite supply, dominating both the amorphous and flake graphite markets. China’s near total control of the graphite market has left western consumers, especially the United States, which is fully dependent on imports to meet industrial demand, with slim alternative options. The remainder of the world’s graphite comes from India, Brazil, North Korea, Madagascar, Sri Lanka, and Canada.
In an effort to further control the market, as it has done with rare earth metals, China has imposed a 20 percent export duty, a 17 percent VAT, and an export licensing system. Further tightening of supply out of the Asian nation is expected, and will no doubt push prices for graphite, especially flake, even higher.
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.