Graphite & Graphene Month Review: the Numbers do not tell the whole Story
ProEdgeWire: Graphite & Graphene had a mixed month in the markets based on the numbers from our sponsors. The month started in a negative trend. It should be no surprise that the sector was feeling the effect of the US election and the post electoral uncertainty prompted by warning of imminent ‘fiscal cliffs’ and the start of the saga involving CIA director Gen. Petraeus. After a rebound in the week ending November 16, where the sector recovered to gain about 7%, market gravity prevailed and the month ended with an overall loss of 14.04%. The loss, however, fails to capture the graphite facts. While graphite prices have dropped from up to USD$ 3,000/ton to USD$ 2,000/ton or less since their highs, they still represent remarkable prices in the historical price context for graphite, which has typically been closer to USD$ 700 than not.
One of the factors driving the value of graphite has been the fact that most of this crucial mineral is produced in China, some 70% of it. While, just about all the companies suffered losses, the worst performer was perhaps the most surprising: Focus Graphite (TSX.V: FMS) which dropped almost 30%. The surprise here is that Focus Graphite is actually slated to become a leader not only in the re-emerging graphite sector with its high purity resource, ideal for a variety of high demand applications but also in the manufacturing of graphene. Graphene is the century’s wonder material, given its adaptability and strength. Focus Graphite and Standard Graphite (TSXV: SGH), which lost 11.76%, have uncovered very high grade resources and the former is relying on these to stimulate the emerging graphene industry. One of the keys to graphene conversion from graphite is flake size. Flake sizes and purity are some of the key factors to secure the highest prices.
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The higher the percentage of large flake and high purity mineralization (higher carbon content), the better the price a resource can command. Focus Graphite and Standard Graphite have prolific high grade resources, while such plays as Zenyatta (TSXV:ZEN) – which showed the most remarkable share price rise in October – can offer graphite that is very similar in chemistry and appearance to the famed Sri-Lankan or vein graphite variety. If the share prices are not indicative of the quality of the resources, they have suffered low investor confidence in November, also as it seemed that Chinese industrial growth was dropping, prompting fears of lower economic growth. In fact, the latest statistics suggest that economic growth in China has actually been growing, led by more manufacturing and buoyed by government investment. Graphite demand should start top pick up then, as it is driven by emerging technologies. Lithium-ion batteries, which use graphite, are used in consumer electronics and hybrid and electric vehicles. Graphite is also a key material in fuel cells, pebble bed nuclear reactors.
Graphite, meanwhile, is very sensitive to manufacturing demand trends as it is used in the steel industry, which is demanding ever higher grades and thanks to the increased levels of purity that are available, flake graphite has started to replace synthetic graphite in some industrial applications. The other aspect that the market has failed to capture is that graphite quality has become an increasingly important parameter for end users. Whereas, China has become the largest single producer accounting for about 70% of global output, the quality of its flake graphite may fail to meet expectations. Much of Chinese graphite is said to be of low quality amorphous material. Graphite demand until 2020 will be driven by batteries, accounting for at least 6% of the projected 9% demand rise.
This suggests that the emerging plays, of which the companies in our list represent an important sample, will be in the leading edge of that demand. If the graphite share prices have dropped, as a consequence of continued economic uncertainty, this is not a reflection of graphite’s actual value. Nevertheless, Zenyatta emerged as the clear winner this month, gaining 22% in its share value. Zenyatta announced that it now owns 100% of the Albany graphite deposit, rich in the Sri Lankan or vein graphite variety. The demand for graphite over the rest of the decade might be best described as being acute, and the alarm of higher prices will be sounding soon enough, especially in view of the time needed to bring the new mining prospects to production. Ultimately, mines need time to proceed from exploration to production and the fastest to reach production will be able to best capture the wave.