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’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.”

Last July and August, I did a 6-part series called the “Dean’s List” which looked at North American explorers and miners that could benefit from government commitments to critical minerals, like the Inflation Reduction Act. This is especially important given how many of those materials are controlled, either through mining, ownership, or processing by China, which isn’t exactly “singing from the same hymn book” as the United States and many of its allies these days. Despite the current global tensions, it also comes down to math. There just isn’t enough of many of these commodities at present to meet the explosive growth being projected in the various segments of the “green” revolution.

One of the articles from last year’s series focused on graphite. I consider graphite to be one of the least publicized critical minerals, especially given this anode material is the single largest component (by weight) of lithium-ion batteries used in EVs (up to 48%) and energy storage technologies. On top of that, almost 80% of graphite mine production in 2021 came from China, while China makes almost 100% of the graphite anode material. Lastly, graphite also requires the largest production increase of any battery mineral in order to meet forecast demand.

Graphite Growth Requirements for Battery Demand Forecasts

Naturally one would expect that the price of graphite would be following a similar path as lithium, which was the second best-performing commodity in 2022, and despite coming off its recent highs, lithium is still triple its three-year average. However, it appears graphite is not following suit, despite all the table pounding about the growing supply/demand imbalance, at least not yet. Although there is a slight caveat to this comment as there are no standardized prices for natural graphite and there are no fungible spot or futures markets.

Flake Graphite Price – 2022

Graphite Prices

There are a couple of reasons that graphite prices haven’t taken off like lithium prices and I’ll try to provide some clarity on that. But as we go through this it will begin to appear that it’s only a matter of time before graphite sees its time to shine. Unless of course, you are a consumer of graphite, then you might want to start working on how you will explain to Elon Musk why dropping all the prices of his Tesla models might not be a great idea.

Historically, industrial uses of graphite have always been the main driver of demand. Currently, steelmaking is still the largest source of demand for graphite, but another interesting use, at least in the U.S., is over 7% of annual demand in 2021 came from brake linings. Graphite production for these well-established industrial uses has helped keep the market well supplied, reducing price volatility. In fact, weakness in steelmaking demand, along with a return to more normal graphite production post-COVID (remember that China didn’t open up their economy until well after the rest of the world) is the primary reason for graphite prices to have come off the boil.

Synthetic Graphite

The second reason graphite prices haven’t taken off (yet) has to do with the fact that anode manufacturers have an alternative, a synthetic graphite derived from petroleum coke (a carbon-rich, solid material that comes from oil refining). I could talk for hours about petcoke from my previous career but I think that would only be interesting to me and maybe one other person I know. As noted earlier, there are a lot of opaque corners in the world of graphite, but I was able to find the following comment: “Today, synthetic graphite anodes dominate in terms of market share, accounting for approximately 57 percent of the anode market” which is attributed to Benchmark Mineral Intelligence but it might be behind their paywall. I also found this quote in an article on the Benchmark Mineral website: “Synthetic graphite anode supply grew by more than 30% during 2022, and is anticipated to even surpass that in 2023, given a supply deficit developing for natural graphite feedstock.” It appears a lot of the growing anode demand for graphite is being supplied by fossil fuels and not natural graphite.

The Time for Natural Graphite

My interpretation of all this information is that it is simply a matter of when, not if, graphite prices start to rise as we have seen with lithium. The reasons are multi-faceted and thus it could make for a slow and steady rally or if all factors coalesce at one time it could become a parabolic rise.

1. As anode demand becomes a more material component of overall graphite demand it removes any previous flexibility from the supply side. If steel making or any other industrial use for graphite returns to historic levels it will quickly put pressure on the rapidly growing anode component of the demand equation. The first graph above shows how just anode growth alone will impact the overall demand outlook, let alone any other industrial uses. In the grand scheme of things, I don’t see steel consumption going to zero anytime soon freeing up that graphite supply.
2. The synthetic graphite derived from petroleum coke is going to be influenced by oil prices. If oil prices go back over $100/bbl that is going to have a material impact on synthetic graphite prices. Granted, oil prices could just as easily go back to the $50-$60/bbl range and partially offset the overall graphite price rise due to general demand growth, but my personal opinion is that we’ll see $100/bbl before we see $50/bbl (perhaps an article for another day).
3. But the biggest impact could come from the ESG side. “The production of synthetic graphite can be four times more carbon intensive than that of natural graphite”, another interesting fact attributable to Benchmark Mineral Intelligence that I could only find in this article. Kinda makes you think we can’t see the forest for the trees when you are making decisions like this in an effort to reduce carbon emissions. If battery makers demand low carbon anode material we could see a step change in prices, literally overnight, as natural graphite becomes the only option.

It would appear now might be a very good time to be developing a natural graphite deposit outside of China.

The flake graphite sector does not get as much attention as lithium, yet the demand wave coming is also very significant. For example, in 2021 the International Energy Agency forecast that flake graphite demand could grow between 8x to 25x from 2020 to 2040. Benchmark Mineral Intelligence forecasts we need 97 new (56,000tpa) natural flake graphite mines from 2022 to 2035.

The calm before the storm

More recently in October 2022, Fastmarkets stated:

“Fastmarkets has forecast that demand for graphite from the battery sector in 2022 will rise by 40% year on year, in line with growth in the EV sector……We expect to see the graphite market tip back into deficit in late 2022…….Graphite prices are in a lull, but this lull will prove to be temporary and may well be the calm before the storm.”

Note: Bold emphasis by the author.

An 8 to 25x increase in demand, 97 new graphite mines, graphite deficit coming in late 2022! Yet no one is talking about graphite. Today we cover the main western graphite producers and touch on a few promising near term graphite producers, noting China currently dominates the graphite and anode sectors.

The western flake graphite leading producers

Syrah Resources Limited (ASX: SYR) – Syrah is an Australian company and one of the world’s largest flake graphite producers from their Balama graphite mine in Mozambique. Syrah is also working towards becoming a vertically integrated producer of Active Anode Materials (“AAM”) at their Vidalia facility, Louisiana, USA. In some exciting recent news for shareholders, Syrah was selected for a U.S Department of Energy grant of up to US$220 million towards their Vidalia facility expansion (initial production targeted to begin in Sept. quarter 2023). This comes on top of the news late in 2021 that Syrah signed a four year deal to supply graphite anode materials to Tesla. Syrah also recently signed an MOU with Ford and SK On as well as an MOU with LG Energy Solution. Clearly, Syrah Resources is in the box seat to become a critical supplier of both graphite and active anode materials this decade, especially for western OEMs.

The following companies are smaller scale western flake graphite producers:

• Advanced Metallurgical Group NV (AMS: AMG | OTC: AMVMF) – Is a diversified producer of critical metals. They mostly produce lithium and vanadium, but also some high purity natural graphite production.
• Ceylon Graphite Corp. (TSXV: CYL | OTCQB: CYLYF) – Produces graphite from their ‘vein graphite’ mine in Sri Lanka.
• Mineral Commodities Ltd. (ASX: MRC) – State they have the “world’s highest-grade operating flake graphite mine with mill feed grade averaging ∼25%C”. Also that they are “the biggest crystalline graphite producer in Europe and the fourth largest producer globally outside of China and accounts for around 2% of global annual natural flake graphite production” at their Skaland Graphite Operation in Norway. They also own the Munglinup Graphite Project in Western Australia and have received Critical Minerals Grant funding to build a pilot scale battery anode plant in Australia.
• Northern Graphite (TSXV: NGC | OTCQB: NGPHF) – Recently completed the purchase from Imerys of the Lac des Iles producing graphite mine in Quebec and the Okanjande graphite deposit/Okorusu processing plant in Namibia. They also own the Bissett Creek graphite project located 100km east of North Bay, Ontario, Canada and the nearby Mousseau West Graphite Project.
  

Near term western potential flake graphite producers

• NextSource Materials Inc. (TSX: NEXT | OTCQB: NSRCF) – Completion of construction activities and the start of mining activities is expected in November 2022, at their Molo Graphite Project in Madagascar. Phase 1 of the Molo Mine is designed to operate at a production capacity of 17,000 tonnes per annum.
  
• Westwater Resources Inc. (NYSE: WWR) – Owns the Coosa Graphite Plant (2023 production start targeted) in USA. The Company plans to source natural graphite initially from non-China suppliers and then from the USA from 2028.
• Nouveau Monde Graphite Inc. ( NYSE: NMG | TSXV: NOU ) (“NMG”) – Own the Matawinie graphite project, located in Quebec, Canada. In September this year it was announced that Tesla had recently visited their project in Quebec. Also recently the Company announced: “NMG, Panasonic Energy and Mitsui announce Offtake and Strategic Partnership supporting the supply of active anode material plus US$50 million private placement by Mitsui, Pallinghurst and Investissement Québec.”
• Lomiko Metals Inc. (TSXV: LMR | OTCQB: LMRMF) – Earlier stage but 100% owns the promising La Loutre Graphite Project in Québec, Canada, where a PEA has been completed.
  

Closing remarks

An 8 to 25x increase in demand by 2040, 97 new graphite mines needed by 2035, graphite deficit coming in late 2022! Investors should not forget about graphite, and particularly focus on those graphite miners that are working towards being able to manufacture value-added active anode materials (spherical graphite), as that is where the real money is.

We may be experiencing ‘the calm before the storm’ (before graphite deficits push up prices), which means the sector still offers many great opportunities for investors.

Disclosure: The author is long Syrah Resources (ASX: SYR) and Advanced Metallurgical Group NV (AMS: AMG).