Graphite: Shiny Black Gold – But Not for Everyone

photo, courtesy: Mason Graphite

photo, courtesy: Mason Graphite

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.

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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.

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Jon Hykawy

About Jon Hykawy

Dr. Hykawy is President of Stormcrow, a Toronto-based business consultancy and independent research firm. He was previously Head of Global Research with Byron Capital Markets, specializing in the economics of critical materials such as lithium, vanadium, fluorspar, graphite and the rare earths. He has extensive experience in the solar, wind, and battery industries, having conducted significant research in the area of rechargeable batteries (including rechargeable alkaline, lithium-ion and flow batteries) and wind power technologies. Jon began his career in the investment industry in 2000 when he began work as a research analyst broadly covering the technology sector. His focus was later refined to clean technologies and alternative energy companies, and his current areas of interest continue to be dominated by the issues of supply of, and demand for, critical materials in a variety of global supply chains.
  1. Good article and a different viewpoint, thanks….one that makes me even happier about Zenyatta! Willing to make any recommendations Mr. Hykawy? any favourites?

    • Soon. I will be publishing an industry piece containing some price projections, and with that I’ll try and lay out an argument for what a good project looks like.

      By the by, supply security to me does not necessarily mean only North American projects. On the other hand, having a project in North America would not scare any buyer that I know of, with the exception of some of the guys in China.

  2. The author does not take into account that the synthetic market can’t supply the vast amounts of graphite needed for the electric car potential demand, leaving aside the demand coming from the electronics markets. Also, natural graphite has performance advantages over synthetic for lithium batteries. That-s why its inevitable that natural will be used.

    • Paul. I like the way you think and personally agree that most analytical data and associated conclusions from this creates a scenario whereby this is not taken into account. Analysts, as we appreciate; like to deal with the numbers of today, and forecast from this…

      This said, I must confess Jon did a great job with the title — love the title ‘black gold’ — really think it sticks.

      As soon as the market has revised numbers on demand, this will be reflected. Thanks for visiting II.

      • Thanks Tracy. Following Jon’s calculations we can also expect that for battery makers it’s far more important to have security of supply (which benefits Canadian and US mines (GPH)), that saving a few hundred dollars per ton. The impact from saving a couple of thousand dollars will be much lower that 0.01$ per battery. Some exotic producers in remote places claim that if they can mine graphite by 300$ less that other companies they will dominate the world. Thanks to Jon numbers we can see that their saving costs are insignificant in the final Price of a battery but having security of supply is critical. Thanks

    • Hi Paul. This author is not yet willing to concede that natural graphite is superior to synthetic. I have seen some papers that suggest SOME natural graphite may work better than SOME synthetics, with respect to a couple of parameters. Whether it is a better, or even acceptable, solution, and for what range of battery performance, remains to be seen.

      No, today there is probably insufficient supply of synthetic to supply an automotive battery industry of significant scale, although you are neglecting the issue of economic levels of substitution in different markets, and making the assumption that new automotive demand will not draw supply from existing markets. But we are not at present requiring that amount of synthetic.

      Nor is the natural graphite industry ready to supply sufficient spheroidized graphite to a burgeoning auto battery industry. At minimum, the industry doesn’t have the jumbo flake to spare.

      Making the point that one industry can’t do it today, thus implying that they won’t be able to do so in the future is, as arguments go, a little weak.

    • Bill McPherson makes a very good point. Graphite prices are already down on those used by Dr Hykawy, and are trending lower. The recent order for 80K – 100K tonnes per year by Chinalco, for aluminum anodes, suggests, too, that the graphite market is, in fact, set for strong growth. Dr Hykawy said:

      “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”

      New areas may produce much stronger growth. But the point to really bear in mind is that, if the lower-price, higher-volume markets, like aluminum anodes, are being serviced, there will also be a much larger volume of large-flake graphite being produced. And that will inevitably push prices down further.

      If the price gap between natural and synthetic graphite becomes wider, then so does the attractiveness of substitution. Dr Hykawy’s logic is only valid while the gap between these prices is not large. If large-flake is available for, say, $1200-$1500 per tonne (which is quite possible as Balama comes on stream), isn’t it likely that the battery manufacturers would come running?

      • Islay you say the recent “order” for 80-100kpa.

        There is no firm “order”, the SYR/Chinalco deal is a MOU, which is non binding. Chinalco can pull out any time.

        • Everybody knows that, on a multiple-year deal of this magnitude, there is no such thing as a “firm order”. But what is the real probability of Chinalco pulling out? Barring the collapse of either company – which is itself very unlikely – I think the answer is “Vanishingly small”.

          • Everybody also knows there are a number of reasons why companies do pull out of a MOU. Most do not include either company going broke. That statement is just plain ridiculous.

      • The “order” from China for Syrah’s material is not an “order”, it is an agreement to someday perhaps negotiate a firm offtake.

        That said, here is something to chew on. The announcement that I saw said that Syrah could ship large quantities of their finer flake material to Chinalco, which they have in huge quantities. This makes no sense, either physically or economically.

        Of course, the Syrah project also makes no sense economically, but that is another topic altogether.

        • Thats exactly right because Syrah hasnt validated the ore composition, remember this ground was first tagged for uranium then belted for such wider halo’s albeit stated contained various deletious compositions which
          for some reason is spruiked as valuables yet
          without the proff of concept except discloure
          of co-operatives results yet without their own
          confirmations. That in itself is a very concerning
          sign which was detected many moons ago.

          In chemistry what matters is your own testings.

          I said it before, the Syrah marketing promotion
          is set to exit Directors early vending shares and their associates aided by the high frequency trading machines of the stock broker ex. Syrah Director was previously employed by.

          Its that simple really.

          • Thanks.

            Syrah has not yet produced enough metallurgical information. Just some test from a couple of tons. That’s not representative of the deposit. So far, there is nothing except a MOU to smaybe ell graphite for a price between 200$/400$ maximum, which is c.20mn of net income. The company capitalizes $600mn. Its the craziest bubble.

        • Jon, I am intrigued by your comment that the Syrah development at Balama makes no economic sense. I understand that the Scoping Study showed, for an initial production rate of 220K tons/year, that mine-gate costs will be about $100 per ton, and FOB costs about $200 per ton. Once the product is on a ship, freight costs anywhere in the world are relatively very low.

          The lowest North American costs of which I am aware are those at Focus, estimated in their PEA at $458 at the mine gate. All the others are higher again.

          Balama therefore appears to represent a significant economic threat to existing (Chinese) and projected (North American and other) deposits.

          So, with the largest volume, the largest reserves, and the lowest costs, how can Balama “make no economic sense”? Or is the comment related to concern for the interests of existing and projected suppliers?

          If Balama “makes no economic sense”, and all the others are two to four times as expensive, why are those same others in business?

          • Have you checked the international maritime organisations stipulation for
            carriage of uranium materials and have you actually checked that graphite is an excluded cargo for 100 pct of all bulk carriers ? well I guess not.

          • would you tell us mugs how this lot will be able to provide a stable identical product
            when the ore is littered with different contaminents

            there you have the answer why Syrah has not provided any information on the ore composition.

            Simple put, they have no clue.

          • Little birdie close to the action told me another ramp shortly, perhaps nearly time to go find some.

          • The costs were driven as low as they were, in a fairly preliminary engineering study, through volume. IF you can find a market for much of their proposed production, then it will crush the price because everyone else isn’t going out without a fight. What that does to their economics is not pretty. That assumes, of course, that they CAN sell what they make…

    • If you are arguing that quoted spot prices for anyone’s jumbo flake is down, you’re right. I can tell you that when suppliers to LG or Panasonic go out to buy jumbo flake, they decidedly do not buy the cheapest stuff off the nearest truck. Supply security, of all types, has a cost, and with some of the issues facing the battery industry today, they do not risk varying suppliers and raw materials. They are currently paying up for what they regard is the best material.

      That said, new entrants are not going to realize prices like that until they have qualified their material with purchasers for a good long time.

    • Good luck to them, I say. They want to build the world’s biggest battery plant which requires raw materials that are all very much produced, today, outside the United States. They are going to need some pretty strong magic to change that in the required time period.

      Lithium comes from South America and Australia. Cobalt comes from Africa. We already know where graphite comes from, but it isn’t the USA.

      I guess Tesla plan to help open a large number of new projects in the US. Maybe Elon can get it done during lulls in building his human-sized pneumatic mail tube project across the United States.

      In case you couldn’t tell, I was being sarcastic.

      • As Jon has indicated, the Tesla statement regarding the source of raw materials for the Gigafactory is Politically Correct pabulum, designed to not frighten the horses. Tesla, more than most, must be keenly aware that the product quantities they require are not now available in North America, and most unlikely to be available within the timeframe of their plant establishment.

        Will they really saddle themselves with a major cost penalty, compared to their Chinese competitors?

        • There is more tan enough graphite in USA (Graphite One, huge deposit by the way) or in Canada (Northern Graphite, Focus, Mason…). Some of these projects, like NGC or FMS are far more advanced than Syrah.

          Again, Jon numbers show that cost is not an issue. Environmental production methods (see NGC clean proprietary method) and security of supply are the drivers.

          I am not really sure that you actually read the news, because I can’t understand how you can say what you say. TESLA will use North American graphite only. This is what the company said mate.

          • There is more than enough graphite in the ground, just as there is more than enough lithium and cobalt. But the question isn’t whether it is in the ground, it’s whether someone is available to dig it up and do so economically. This was a window-dressing announcement. Now that we are done bowing to the flag and playing anthems, let’s get to work and figure out where the stuff really has to come from.

  3. The holy grail of Batteries is “Tesla will use camel poop if it will give the end user one more mile of electrical charge. So it really is not a matter of what something costs, its what you can get out of it. If in the example the spheroidized” graphite resulted in X miles. The camel poop X+2 miles then Tesla would use it. So based on that premise, the best materials will win the day. There obviously is a cost analysis associated with that but in the end the best graphite, what ever it is, will win.
    Spheroidized” graphite is damaged flakes. If you have 100% purity but have destroyed he substrate electrical characteristics that created the advantage in the first place, you have achieved nothing.

    The focus has been on Flake Producers for years when in fact 2 companies have Lump that have far greater electrical characteristics with less damage to the flakes. One of those being Zenyatta and the Albany Deposit, the other Canada Carbon with Miller Deposit. Both have shown 99.99%+ with inert contaminants and one has been Deemed Nuclear Grade at 99.9978% and that is Canada Carbon- CCB-Venture Canada exchange.
    I agree with the article that contaminants are an issue, however, that creates the illusion that less then 100% is not satisfactory. There is more too this, than that. 99.9978% with deemed inert contamination without flake deformation is far better then deformed flakes at 100%
    Few concentrate on the electrical characteristics and what its job is in its environment they just assume 100% is the best, to that I say “camel poop” :)

  4. As usual the chief ignores the issue and just goes to talking points. Neither zen or ccb is producing. Zen may be close. Ccb is years away. Bulk sample permits don’t count. And the marginal benefit from their product is not even known. Would they make for a better battery? Possibly. But with no timeframe on production they are not even in the conversation.

    • Gads I feel priviledged an Internet troll follows me all the way over here. If you look at the needs of Tesla bulk samples are more then adequate, In fact CCB could feed then all they need this year without issue. When you bulk sample is 490 tons and they use 8grams per cell, I think CCB could provide them with no issues. Thats just from what they have got piled on the property. They know they have more then another 500 tons sitting in surface veins. So assuming Tesla needs something in the order of 20 tons a year, I think CCB could ear mark that for them.

      Just think, you are wrong on Stockhouse and you follow me all the way here and you are wrong again. Too funny lol

      • Dennis, am I missing a chapter here? You said 20 tons of graphite for a year’s supply to Tesla, right?

        If I recall correctly, the figure of 40 kg per vehicle is being bandied around as a working estimate. So 20 tons of graphite would make batteries for a grand total of 500 vehicles – which is not much more than a day’s planned production.

        Are there a couple of zeroes missing somewhere?

        • What your missing is full disclosure on the contaminents on Syrah’s Balama ground and
          indeed the inert contaminents in full disclosure.

          Since you have been spruiking all the chat rooms
          in Australia, it would indeed be a pleasure if you
          make a fool of yourself on Stockhouse too.

          So Islay what is the most preferable dimensions
          of flake graphitr for lithium batteries ? do you know ? how is the crystallinity measured ?

          Could you ask your buddies to put some disclosure of these important issues ?

          Many thanks in advance.

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