I am in Africa, enjoying some heat and looking at graphite projects. I’ve been fond of saying that there is no shortage of graphite, and that is absolutely true. Carbon is pretty common on this planet, and the Earth has done a pretty good job of keeping some of it at temperatures and pressures high enough to get it to form a common crystalline structure that we call graphite. Problem is, we have also been good at finding uses for this stuff, and the more modern, technological uses for graphite demand some rarer materials.
Six or seven hundred words isn’t enough space to really get into what graphite does. The most commonly recognized uses are pencil “leads” and lubricants. The largest use for graphite is one that isn’t well recognized outside of industry, and that is refractory materials. Basically, graphite can be made into blocks or crucibles or any other desired shape, and can withstand large amounts of heat without immediately bursting into flame, contrary to what you think a big block of carbon would do. Graphite ain’t coal. Common industrial graphite refractories are made out of a mix of medium and large flake graphite. For some truly exotic applications, the graphite is made out of very fine flake material. Basically, the refractory maker starts with a graphite powder, coarse or fine, mixes it with binders that allow it to hold the desired final shape, then sticks the part in an electric furnace that uses the conductivity of the graphite to heat it up and reform the whole thing, binder and all, to graphite. Using large and medium flake requires less binder, makes a cheaper refractory part, but it probably contains more defects and won’t last as long in use as the more expensive part made using fine flake and much more binder. Refractory demand is growing at GDP rates.
Lithium batteries use graphite as anode material, but this takes a little explanation, too. Natural graphite comes from mines, and is relatively impure. Making it purer involves leaching with acids or using chemicals and high temperatures. Synthetic graphite is made using very high temperatures and organic feedstock like petroleum coke. The combination of high temperatures and organic feedstocks means that synthetic graphites are purer than even treated, natural graphites. Batteries are chemically complex, and the last thing companies making them want is contamination So what is commonly done today is that flakes of purified natural graphite are “spheroidized”, or mechanically played with until the flattish flake becomes a little round potato shape, then that blob of graphite is coated with synthetic. Natural graphite is cheaper than synthetic, but any of its contaminants are now hidden behind a coating of highly purified synthetic graphite. Battery use is growing much faster than GDP, of course.
Many are pushing the concept that natural graphite will completely replace synthetic in batteries. Let’s see why this is probably not true, at least not soon. Let’s say that natural, jumbo flake graphite costs $3,000 per tonne. Let’s say purifying it costs another $1,000 a tonne (don’t quote me on that, we are trying to be conservative here), and that spheroidizing causes us to lose 1/2 of our material. So we get a natural battery-grade graphite that costs $8,000 a tonne. The 18650 cells that are used in laptop computers or a Tesla Model S contain about 10 grams of graphite, each (according to Nexeon). That means, if it was all natural, it would be worth about $0.08. Let’s say synthetic graphite is worth 2x the amount of natural. The current ratio of synthetic to natural in batteries is about 40/60, so the blended feedstock cost is really about $0.11. We can save $0.03 a battery by switching to natural, and that’s it. Even a Tesla Model S uses only about 7,000 batteries, so the difference would be $210. Substantial in volume, but if even one Tesla Model S suffered a catastrophic battery failure because of that saving, that would likely impact the company far more than saving $210 a car at this stage. Batteries are likely to go to higher ratios of natural graphite over time, but it will be over substantial time.
Anyway, without going into much more detail, we agree that there is room for new graphite producers. But the demand for new graphite is largely in the form of large and extra-large flake, for uses like batteries and carbon foils, with good but not explosive demand growth. There is already more than enough very fine flake coming out of China. And depending on what mines make it into production, in my opinion there is probably only room for three or four new suppliers. So pick your investments in this space very carefully, and remember that when a commodity sells for $3,000 a tonne, it can ship anywhere. That means that the very best Canadian (or Australian, or Lithuanian for that matter) graphite project might not be good enough, if it is really only the 11th best project, globally.