2023 has been a rough year for all the EV materials and graphite was no exception. EV battery anodes contain a combination of spherical graphite (sourced from natural flake graphite) and synthetic graphite. Today we take a look at the key trends of 2023 and what we can expect in 2024 and beyond.

2023 graphite trends

A slowdown in the growth rate of EV sales in China along with less demand from the steel industry were mostly to blame for the graphite demand slowdown when compared to 2022. The other key factor was the excess anode capacity that came online during the 2022 China EV boom when EV sales skyrocketed.

China flake graphite prices fell throughout 2023 and have recently risen slightly from their bottom at ~US$550/t. China’s uncoated spherical graphite prices fell to US$2,200/t due to excess supply. China’s synthetic graphite prices were also weaker in 2023, due to slower demand.

A trend in 2023 was the increase in the popularity of synthetic graphite for use in battery anodes, particularly in China. Synthetic graphite prices have typically been much higher than flake graphite prices due to the high energy intensity needed to produce synthetic graphite. However falling energy input costs in 2023 and new capacity resulted in lower synthetic graphite prices and prices much closer to flake graphite. This led to anode producers increasing the ratio of synthetic graphite to spherical graphite in their anodes, and less demand for spherical and flake graphite.

Then in November 2023, the European Union added synthetic graphite to its list of critical materials as part of their Critical Raw Materials Act (“CRMA”).

Finally, in late 2023, China introduced temporary export permits for some graphite products (natural flake graphite, spherical graphite, & synthetic graphite) to apply from December 1, 2023. This has resulted in some recent price increases in the graphite market and a large amount of uncertainty around graphite products supply outside of China. China controls 75% of the global graphite anode supply chain.

The outlook for graphite in 2024

Most analysts are forecasting a fairly balanced graphite market in 2024, with the possibility of some price recovery from the 2023 cyclical lows. UBS tips graphite prices to surge 50% from the 2023 lows and has set its long-term flake graphite price at $850/t. UBS forecasts natural graphite demand rising by six times this decade to reach a demand of 6.3 million tonnes pa, with a deficit forming from 2025.

Others such as Macquarie Research are forecasting graphite deficits to begin in 2024 and increase each year to 2030.

Macquarie Research (as of March 2023) forecasts flake graphite deficits starting in mid 2024

The long-term outlook for graphite

Looking out further graphite demand is set to surge this decade and next due to the expected massive rise in global EV sales and energy stationary storage (“ESS”) battery demand. Below are 3 demand forecasts that give a guide as to what may happen over the long term.

• Benchmark Mineral Intelligence forecasts we will need 97 new 56,000tpa natural flake graphite mines from 2022 to 2035 to meet surging demand.
• The IEA forecasts flake graphite demand to rise 8-25x from 2020 to 2040.
• Trend Investing forecasts flake graphite demand to rise 17x from 2020 to 2037.

Trend Investing forecasts flake graphite demand to increase 17x from 2020 to 2037. The IEA forecasts a 8-25x increase from 2020 to 2040

Closing remarks

While 2023 has been a very tough year for the graphite sector the future looks much brighter, especially beyond 2025 when possible deficits are forecast to increase each year. For now, the flake graphite miners that are low-cost producers and who can develop integrated ‘flake to spherical graphite’ production stand to perform best. Several western graphite companies are rapidly advancing in this direction and are worth following closely.

Those graphite miners that can qualify their product to meet the IRA and/or the CRMA should also be at an advantage, especially with the U.S. Foreign Entity of Concern (“FEOC”) rules for critical materials commencing in 2025.

We will keep you updated on the graphite sector and miners in 2024.

China to impose some graphite and processed graphite materials ‘export permits’ from December 1, 2023

Last week it was reported that China, the world’s top graphite producer plans to curb exports of key battery material by implementing export permits for some graphite products from December 1 to protect national security. Another report stated: “China graphite export restrictions could hinder ex-China anode development….if it lasts into the longer term, it is likely to accelerate the build-out of a localized graphite and battery anode supply chain outside China.”

Graphite is the number one metal required for lithium-ion batteries making up about a 28% share. It is used in the anode.

The world is very dependent upon China to supply processed graphite material and anodes for Li-ion batteries

The reason why this is huge news in the graphite world is that China produces 67% of global natural flake graphite supply and refines more than 90% of the world’s graphite into active anode material (typically spherical graphite). If China were to deny or delay permits for spherical graphite it will cause major problems for anode manufacturers outside China, such as those in South Korea, Japan, or North America.

China currently produces ~77% of global lithium-ion batteries and 75-80% of global electric cars, thereby completely dominating the industry. If the West is shut out from sourcing processed EV battery materials from China then they will have a major problem producing their own EVs. China plans to prioritize EV battery materials for their own needs. This is why President Biden introduced the Inflation Reduction Act (IRA) and the EU introduced the EU Critical Raw Materials Act. Both are designed to address the shortages in the EV supply chain and the forecast shortages of future supply of critical raw materials. The problem is the IRA has done little to address the supply of raw materials and the EU Critical Raw Materials Act is woefully inadequate and targets fall way short of what will be needed.

Which western graphite companies can rise to meet the challenge to establish an ex-China graphite supply chain

The leading western graphite companies that are working to establish an ex-China supply chain for flake graphite, synthetic graphite, and spherical graphite include:

• Syrah Resources Limited (ASX: SYR) – Largest western flake graphite producer with their 350,000tpa flake graphite capacity Balama Mine in Mozambique. Currently constructing the Vidalia spherical graphite facility in Louisiana, USA with Stage 1 production plans to produce 11,250tpa of spherical graphite. Longer term they plan to expand to 45,000tpa in 2026 and then to >100,000tpa by 2030 with an Europe/Middle East facility. Syrah already has an off-take agreement with Tesla (NASDAQ: TSLA). Syrah’s stock price has surged ~80% higher the past week following the release of the China export permits news.
• Nouveau Monde Graphite Inc. (NYSE: NMG | TSXV: NOU) – Is rapidly progressing their plans for their Matawinie Graphite Mine and Bécancour Battery Anode Material Plant in Quebec, Canada. The company is working with Panasonic to qualify their graphite anode material. Panasonic supplies Tesla with batteries.
• Northern Graphite Corporation (TSXV: NGC | OTCQB: NGPHF) – Owns graphite producing and past producing mines in Quebec, Canada and Namibia. They also own the Bissett Creek graphite Project in Ontario, Canada. The Company state that they are “North America’s Only Significant Natural Graphite Producer”. The Company plans to develop one of the world’s largest battery anode materials facilities in Baie-Comeau Québec with 200,000tpa of capacity.
• NextSource Materials Inc. (TSX: NEXT | OTCQB: NSRCF) – A new graphite producer from their Molo Graphite Mine in Madagascar with Phase 1 capacity of 17,000tpa of flake graphite production and plans to expand to 150,000tpa. The Company’s short term plan is for a Battery Anode Facility in Mauritius and longer term for similar facilities in USA/Canada, UK, EU.
• Magnis Energy Technologies Ltd. (ASX: MNS | OTCQX: MNSEF) – Magnis aims to produce high performance anode materials utilising ultra-high purity natural flake graphite from their Nachu Graphite Project in Tanzania. Magnis’ partially owned U.S.-based subsidiary Imperium3 New York, Inc (“iM3NY”) operates a gigawatt scale lithium-ion battery manufacturing project in Endicott, New York.
• Talga Group Ltd. (ASX: TLG) – Own the integrated mine to anode Vittangi Graphite Project in Sweden. In September 2023 Talga broke ground on their 19,500tpa anode facility, stating “the refinery is projected to be the first commercial anode production in Europe for electric vehicle Li-ion batteries”.
• Novonix Limited (NASDAQ: NVX | ASX: NVX) – Has a production capacity target of up to 20,000 tpa of synthetic graphite anode material from their Tennessee facility in the USA.
• Anovion Technologies (private) – The USA anode producer plans to invest US$800 million to produce a 40,000tpa synthetic graphite anode material facility in Georgia, USA with plans to expand to 150,000tpa by 2030.

Syrah Resources leads the West’s attempt to build an ex-China flake graphite and anode material supply chain

Magnis Energy Technologies is working towards becoming a graphite producer, anode materials producer and is already a small scale JV battery producer in the USA

Closing remarks

The Western world received a loud wake-up call the past week. The China graphite products ‘export permits’ may only serve to restrict or slow down some anode material supply from China, but it puts the West on notice of how dependent they are upon China.

Given the world is rapidly moving to electric vehicles, the West must urgently build up its EV materials supply chains or risk being left behind in the global EV race.

The USA is making some bold moves and the companies discussed in this article are moving in the right direction. Let’s just hope that the western EV supply chain build out accelerates rather than stalls like GM’s latest electric pickup truck plans. I think Americans will want U.S.-branded electric cars and I know Europeans will want European branded electric cars. If we are not careful our only choice one day might be Tesla and Chinese electric cars. Stay tuned.

In a recent episode of InvestorNews, Tracy Weslosky sat down with Eric Desaulniers, MSc, Géo, President & CEO of Nouveau Monde Graphite Inc. (NYSE: NMG | TSXV: NOU), to discuss China’s surprising decision to implement export permits for certain graphite products starting December 1st. Eric remarked, “Waking up to this news was unexpected, but not entirely surprising. China’s decision to restrict the export of battery materials, starting with graphite, comes sooner than many experts anticipated.”

With the booming demand for electric vehicles, which require five times more graphite than any other critical mineral, Tracy delved into the implications of China’s move on graphite supply. Eric highlighted China’s dominant position, controlling nearly 100% of natural graphite processing. “This strategic decision by China impacts many companies in the U.S. that are scaling up cell production,” he said. He was proud to mention that Nouveau Monde stands out, developing one of the largest and most sophisticated natural graphite operations outside of China.

The changing dynamics are also influencing Nouveau Monde’s partnerships, particularly with giants like Panasonic. The recent developments have intensified their ongoing discussions. As Eric pointed out, the challenge will be detaching from China’s supply chain, especially amid skyrocketing cell production demand. “Our goal is to be a viable alternative, and this current pricing scenario outside China underscores the need for that,” Eric emphasized.

To access the complete interview, click here

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About Nouveau Monde Graphite Inc.

Nouveau Monde Graphite is striving to become a key contributor to the sustainable energy revolution. The Company is working towards developing a fully integrated source of carbon-neutral battery anode material in Québec, Canada, for the growing lithium-ion and fuel cell markets. With enviable ESG standards, NMG aspires to become a strategic supplier to the world’s leading battery and automobile manufacturers, providing high-performing and reliable advanced materials while promoting sustainability and supply chain traceability.

To know more about Nouveau Monde Graphite Inc., click here

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China’s Ministry of Commerce has announced that, effective December 1, export permits will be mandated for specific graphite products, citing national security reasons. Graphite, a pivotal component for electric vehicle (EV) batteries, finds China at its epicenter, producing 67% of the global supply of natural graphite. Additionally, China refines over 90% of the world’s graphite, which is integral to almost all EV battery anodes.

This decision unfolds in a backdrop of escalating tensions and increasing scrutiny from foreign nations. The European Union is considering tariffs on EVs originating from China, attributing unfair advantages due to state-backed subsidies. Concurrently, the U.S. has broadened its restrictions on Chinese firms accessing semiconductors and has prohibited the sale of advanced AI chips by Nvidia to Chinese companies.

The new regulatory framework targets two primary graphite types for export permits: high-purity synthetic graphite and natural flake graphite. This is reminiscent of earlier controls over “highly sensitive” graphite products, which are now integrated into the updated regulations. Analogous constraints were previously placed on semiconductor metals, gallium and germanium, which witnessed a marked reduction in exports from China.

Even though the U.S. and Europe are venturing into the graphite domain to counteract China’s monopoly, experts forecast a formidable path ahead. The central graphite importers from China currently include Japan, India, and South Korea.

These developments occur as the EV market is on an upward trajectory, with sales surging past 10 million units the previous year and predictions hovering around 14 million for the current year. This booming sector has amplified the demand for graphite, with the global market for battery use expanding by 250% since 2018. China’s contribution was a colossal 65% of the total production in the past year.

The growing EV market accentuates the criticality of raw materials like graphite. As China further consolidates its hold on the graphite industry, potential ramifications for the global EV landscape are imminent.

Right after writing this summary, I was able to reach Jack Lifton, Co-Chairman of the Critical Minerals Institute, to delve deeper into the repercussions and intricacies of these developments.

Lifton’s perspective on China’s recent announcements was direct: “This isn’t fundamentally about national security. It’s a manifestation of China’s discontent with the West’s ongoing rhetoric of reducing dependence and risks associated with their supply chain.” Lifton highlighted China’s pivotal role in graphite anode processing, suggesting that the dream of a rapid shift to EVs in the West could remain elusive without China’s involvement.

Addressing the challenges to China’s manufacturing supremacy, Lifton commented, “For years, the West prioritized cost-cutting, and China emerged as the answer. Today, the tables have turned, and the West is waking up to the consequences of its over-reliance on Chinese supply chains.”

On the topic of recent restrictions, Lifton opined, “China is fortifying its position in the critical minerals sector. The reality is that with China’s stronghold, the anticipated rapid transition of the West to EVs is looking increasingly optimistic.”

When quizzed about what minerals might be next in line, Lifton’s prediction was clear: “Post rare earths and graphite, my money would be on lithium or cobalt. The West’s ambitions for the EV transition are simply too vast for its current resources without China’s involvement.”