EDITOR: | April 18th, 2013

The Pulse: China’s changing graphite scene; Blame Washington and Tokyo for the gold plunge

| April 18, 2013 | No Comments
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Pulse_FinalFurther evidence is emerging that China is, indeed, moving to force graphite flake producing companies into larger, more consolidated entities.

The first report of such a move was indicated here on ProEdgeWire two days ago but now there’s a report out that one of the key entities in this push is South Graphite Co in Hunan province, which company has already been absorbing some smaller players. The plan is to have the national consolidation completed within five years – although this has to be qualified by the fact that a similar move within the rare earth sector has not yet achieved a similar goal.

However, if you look at the results out overnight from China Carbon Graphite Co, the largest wholesaler provider in China of fine-grained and high-purity graphite, it seems like many smaller companies might be finding the going tough, something that will encourage them to seek mergers with more powerful partners. China Carbon reported a drop in some consumption sectors for its product, due partly to the downturn in the steel sector.

However, this company concentrated on two objectives in 2012. One was to lift output from 30,000 tonnes a year to 60,000 tonne; the other was to put a very high priority on developing more downstream processing business. For the smallest of the graphite miners, neither of those would be an option. China Carbon Graphite Group was founded in 1986 as a state-owned enterprise, although it went private in 2001 and is now listed on the Nasdaq exchange. It manufactures carbon- and graphite-based products in China. They also produce electrodes and other forms of graphite products.

China has around 400 graphite mines. But such splintering of the sector is not consistent with the national plan to invest large sums to build its own graphite processing and downstream uses.

There also needs to be more rationalisation in the industry. According to a report last year which I quoted on this site’s graphite predecessor, most of China’s graphite comes from Heilongjiang province. Those mines located in the north of the country close during the winter months of November to March, so there are seasonal supply variations.

A rationalisation and consolidation will also aid China maintaining strong influence over the sector. Apart from producing 70% of the world’s graphite, of the graphite still in the ground  China has 73 per cent of known global resources, although this will be diluted considerably as more graphite is found elsewhere, a process well under way. However, tonnages do not tell the whole story: as much as 70 per cent of China’s output is very fine flake, or amorphous graphite, with the rest being flake. Most of the production is around the +200 mesh range.

There have been two other graphite developments this week.

One, Sri Lanka has been talking to Chinese officials about supplying key raw materials. One such material mentioned by Industry and Commerce minister Rishad Buthiudea is graphite. His ministry operates Kahatagaha Graphite Lanka Limited which operates several mines. Its main overseas market at present are Japan, Germany and Pakistan.

Two, Japan’s Showa Denko KK has taken a controlling interest in Sinosteel Sichuan Carbon Co Ltd, an integrated manufacturer of graphite electrodes in China. The operation will now be known as Showa Denko Sichuan Carbon Inc. The Japanese parent will introduce its graphite electrode manufacturing technology into Showa Denko Sichuan Carbon to improve product quality, and serve the growing markets in China and other Asian countries. The Nikkei news service says graphite electrodes are used for electric steelmaking, which melts iron scrap for recycling. Electric steelmaking is expected to grow due to its environment-friendly features of iron resource recycling, and lower CO2 emissions compared with blast-furnace steelmaking.

GOLD: Gold was recovering in Thursday’s afternoon trading in Asia, sitting at $1377/oz at 3.0 pm Hong Kong time.

Meanwhile, the widely read commentator at London’s The Daily Telegraph, Ambrose-Evans Pritchard, says the gold collapse this week – which saw a one-day fall greater than anything seen in one session during the famous 1980 gold collapse – was the fault of the Federal Reserve and the Bank of Japan.

“The Fed assault began in February when it published a paper warning that the longer quantitative easing continues, the harder it will be for the bank to extricate itself,” he writes, adding: “This was a shock. It suggested that the Fed had lost its nerve,”

As for the Bank of Japan, Evans-Pritchard writes that it had been assumed that the $US1 trillion injection of new money out of Japan would revive the yen carry-trade. But no: Japanese investors are bringing their money home. Referring to the oft cited enthusiasm among Japanese housewives for a little speculation on the global financial markets, the journalist notes that “Mrs Watanabe is selling her Kiwi (New Zealand) and Aussie bonds to bet on stocks and property at home. And she is selling gold like never before. This, too, is a shock.”


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