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.

Recent developments from China’s Ministry of Commerce concerning export permits on critical graphite products have sent ripples through the financial markets. Graphite, indispensable for electric vehicle (EV) batteries, is now under tighter control by China, a country that dominates its global production.

Troy Grant of Elcora Advanced Materials Corp. (TSXV: ERA) highlights,

“Graphite content in an electric vehicle exceeds the demand for any other critical mineral fivefold. We’ve observed China make similar business maneuvers with rare earths, germanium, gallium, and now graphite. This trajectory was anticipated. While I concur with CMI’s Jack Lifton on lithium or cobalt possibly being next, we shouldn’t overlook vanadium.”

According to Critical Minerals Institute (CMI) Director Matt Bohlsen out of Australia early AM,

“The EV boom is creating a surge in demand for graphite… Each fully electric car battery has between 60-100kgs of graphite. China’s proposed ‘export permits’ will likely lead to a shortage of spherical and synthetic graphite outside of China, underscoring the world’s vulnerability to China’s supply disruption of critical minerals.”

Investors are now unquestionably watching stocks that might benefit the global market in light of the challenges presented by yet another China C Critical Mineral export ban. Here are five stocks that we were researching this morning (listed by market cap):

1: Syrah Resources Limited (ASX: SYR) – Market Cap: AUD$307.53M* — Syrah is an Australian Securities Exchange listed industrial minerals and technology company with its flagship Balama Graphite Operation in Mozambique and a downstream Active Anode Material Facility in the United States. Syrah’s vision is to be the world’s leading supplier of superior quality graphite and anode material products, working closely with customers and the supply chain to add value in battery and industrial markets.

2: Talga Group Ltd. (ASX: TLG) – Market Cap: AUD$353.53M* — Talga Group Ltd. is building a European battery materials supply chain to offer products critical to the green transition. Talga’s innovative technology and vertical integration of 100% owned Swedish graphite resources provides security of supply and creates additional value for stakeholders.

3: Zentek Ltd. (NASDAQ: ZTEK | TSXV: ZEN) – Market Cap: USD$128.24M*

Zentek is an ISO 13485:2016 certified intellectual property technology company focused on the research, development and commercialization of novel products seeking to give the Company’s commercial partners a competitive advantage by making their products better, safer, and greener.

Zentek’s patented technology platform ZenGUARD™, is shown to have 99-per-cent anti-microbial activity and to significantly increase the bacterial and viral filtration efficiency of both surgical masks and HVAC (heating, ventilation, and air conditioning) systems. Zentek’s ZenGUARD™ production facility is located in Guelph, Ontario.

Zentek has a global exclusive license to the Aptamer-based platform technology developed by McMaster University which is being jointly developed Zentek and McMaster for both the diagnostic and therapeutic markets.

Zentek is also the 100% owner of Albany Graphite Corp. (AGC).  AGC’s recently filed 43-101 Mineral Resource Estimate shows circa 1,000,000 tonnes of graphite in Ontario.  Importantly, that graphite is volcanic of origin, and globally unique. It is expected that graphite from AGC will perform better in EV batteries than other materials because of the volcanic origin.

4: Nouveau Monde Graphite Inc. (NYSE: NMG | TSXV: NOU) – Market Cap: USD$159.6M*

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.

5: Northern Graphite Corporation (TSXV: NGC | OTCQB: NGPHF) – Market Cap: CAD$28.6M*

Northern is a Canadian, TSX Venture Exchange listed company that is focused on becoming a world leader in producing natural graphite and upgrading it into high value products critical to the green economy including anode material for Lithium-Ion batteries/EVs, fuel cells and graphene, as well as advanced industrial technologies.

Northern is the only graphite producing company in North America and will become the third largest producer outside of China when its Namibian operations come back online. The Company has the large scale Bissett Creek development project in Ontario that will be a source of continued production growth in the future.  All projects have “battery quality” graphite and are located close to infrastructure in politically stable jurisdictions.

(*) Market cap figures were sourced from the ASX, TSX, and Yahoo Finance Boards as of market opening on Friday, October 20, 2023. The listed market caps are in millions.

Amid these market shifts, it is pivotal for investors to stay updated and understand the dynamics affecting graphite and related stocks in the critical minerals sector. As China tightens its control over graphite exports, these companies and the wider EV sector will be in sharp focus, making it a space to watch closely in the coming months.

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.