Graphite Price and Shortage Update

In recent years, the availability of reliably priced graphite materials on the global market has significantly decreased. As discussed in a previous article regarding the US-China trade war, the production of synthetic graphite heavily relies on coke and pitch sourced from China. The ongoing trade conflict has exacerbated an already strained market characterized by idle production facilities and green initiatives from the Chinese government, which have slowed the production of coke and pitch. While some relief regarding pricing and availability of raw materials is emerging, the market for graphite materials remains tight. Semco anticipates that this tight market will persist for at least another year before graphite availability and price stability return to previous levels. To assist our clients in navigating the current volatile environment, Semco continuously monitors market developments, aiding in long-term assessments and resource allocation. In this article, we will explore recent reports on the causes of the volatile market and its impact on graphite electrode production, needle coke supply, and the industries reliant on these materials.

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A significant factor contributing to the tightening graphite market is China's commitment to combat pollution by imposing restrictions on certain industries, particularly those located near major urban centers. As reported by Reuters on September 21, "Beijing's campaign for clearer skies has closed thousands of mills and mines producing low-quality steel and coal." The report also notes, "Makers of graphite electrodes have not been spared." Graphite electrodes, essential for melting scrap in electric arc furnaces to produce new steel, primarily consist of high-value needle coke, which is derived from either petroleum or coal tar. Manufacturing facilities in proximity to cities have been most adversely affected by these regulations as China strives to improve air quality in densely populated areas. Though these shutdowns have negatively impacted smaller firms, larger players that have managed to withstand the changes are experiencing favorable conditions.

While some graphite production companies unaffected by environmental regulations are flourishing in the current market, downstream industries reliant on needle coke are facing significant challenges. Besides their use in graphite electrodes, needle coke is also a key component in lithium-ion batteries used in phones and electric vehicles, thereby intensifying supply constraints for the steel sector. Additionally, petroleum coke, a variant of needle coke, plays a vital role in the aluminum industry for manufacturing cathodes essential to the smelting process. The situation is precarious, with steel mills around the globe expressing concerns about potentially depleting their inventory of replacement electrodes by the year's end.

At Semco, we are positioned within the supply chain that initiates with firms producing the raw materials required for graphite manufacturing. To mitigate the severe price fluctuations stemming from external factors, such as Chinese environmental policies and international trade relations, Semco proactively evaluates market conditions and builds inventory when prices are favorable. However, there are limitations to how much graphite we can accumulate. Like other manufacturers, we are hopeful for more advantageous conditions in the international graphite market in the near future.

You can read the entire article from Reuters here.

China dominates global graphite electrode production. Credit: Costfoto/NurPhoto via Getty Images.

Graphite, a crystalline form of carbon, is an essential component of lithium-ion batteries, constituting the primary material in the anode, making up 50% of the cell alongside a small amount of silicon.

Graphite is therefore crucial for the energy transition. However, unlike other critical minerals such as lithium and cobalt, it has received less media attention, primarily due to its relative abundance. The US Geological Survey estimates that there are 800 million tonnes (mt) of recoverable graphite reserves globally, although the US holds a minor share. Nonetheless, the majority of graphite supply is dominated by China, which also controls other minerals critical to battery production. China accounts for 77% of total global graphite production and about 97% of global anode output, indicating that nearly all graphite not produced in China is sent there for processing.

The US Government aims for 56% of all new US vehicles sold to be electric by 2030 and is increasingly addressing China's monopoly by enhancing incentives for battery manufacturers to diversify their supply chains away from Chinese sources.

To encourage domestic development, the US has reintroduced a 25% tariff on both natural and synthetic graphite anodes sourced from China, designating it a “foreign entity of concern.” Furthermore, natural graphite processed in China will incur similar tariffs beginning in 2024.

The US will also eliminate a waiver allowing vehicles with batteries containing Chinese graphite to qualify for substantial federal subsidies under the Inflation Reduction Act (IRA) in 2024.

These changes present a significant opportunity for the mining and upstream processing sector. However, current projects under development are discovering that competing with their Chinese counterparts is not straightforward.

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Projects start to emerge

As of 2020, only a few battery factories were operational in the US. Today, approximately 34 facilities are either planned, under construction, or already functional. While a non-Chinese supply chain for more complex battery minerals like cobalt and lithium has emerged, such a supply chain for graphite has not yet materialized.

This is likely due to China's established ecosystem and rumored government subsidies that allow for cheaper production. However, Ross Gregory, a partner at advisory firm New Electric Partners, insists this should not excuse the lack of non-Chinese entities entering the market, highlighting that producing active anode materials is less complex than cathode production.

Gradually, however, several projects are taking shape. For instance, Syrah Resources is developing a processing facility in Louisiana while mining natural flake graphite in Mozambique. Canada-based Nouveau Monde Graphite is producing graphite at its Matawinie mine in Quebec and is constructing a manufacturing plant expected to yield 43,000 tonnes per annum (tpa) of active anode material when operational.

US-based Urbix is developing a commercial-scale processing plant in Arizona, set to begin operations in 2024 to produce battery-grade graphite. The company is actively negotiating a location for a facility that will produce 30,000 tpa, having secured conditional offtake agreements. Urbix is also establishing a demonstration pilot plant in Arizona.

The graphite price differential

Northern Graphite, which operates a flake graphite mine in Canada, is also planning to develop an anode processing plant in the country alongside a graphite mine in Namibia, expected to restart in 2024. CEO Hugues Jacquemin states that clearer definitions regarding "foreign entities of concern," along with plans to restrict subsidies if graphite materials from such entities are utilized in US batteries, has significantly prompted the emergence of a supply chain.

"The tariffs raise the bar for pricing these materials in the region, fostering a more conducive environment for attracting investment and developing the supply chain in North America," he says.

Nonetheless, raising capital for these projects remains challenging due to higher cost structures compared to China. Additionally, uncertainties surrounding upcoming elections and the timing of certain incentives pose further hurdles.

The average selling price of Northern Graphite’s natural graphite flakes ranges around $1,500 per tonne (t), compared to $600-800/t in China. To process this material commercially in Canada, the company needs to achieve a selling price of $8,000-10,000/t, particularly given that it can purchase it in China for $6,000-7,000/t. With the addition of a 25% tariff, the product becomes more competitive on the lower end, Jacquemin explains.

Battery and electric vehicle (EV) manufacturers are displeased with the rising costs of materials. Their argument emphasizes that there seems to be no justification for developing a local supply chain when a readily available one exists in China. Jacquemin counters this by pointing out the insecurity of that supply chain.

Patrick Ahlm, communications manager at Urbix, believes that IRA credits are driving battery manufacturers and original equipment manufacturers (OEMs) to establish a domestic supply chain, thereby encouraging investors such as Appian to develop projects in the US.

"Our challenge lies in scaling up our technology and demonstrating it commercially, while continuing testing and validation with battery manufacturers," he notes.

Ahlm adds that the graphite anode produced by Urbix will be competitive with China's offerings, stating, "Our ambition is to not solely rely on these tariffs but consider them as added incentives."

Gregory argues that higher costs should not present a barrier in the long run.

"This applies to all components—graphite is not unique here; remember that graphite anode expenditure constitutes only about 8-9% of total battery costs, making it one of the least price-sensitive components."

The ESG factor

Beyond tariffs and subsidies, various factors may drive the establishment of a non-Chinese supply chain. With increasingly stringent environmental, social, and governance requirements, Jacquemin believes the graphite and graphite anodes produced by Northern Graphite will attract OEMs due to their reduced carbon footprint. A smaller supply chain, coupled with hydroelectric power usage, means the graphite output will be considerably more environmentally friendly.

"We believe the premium price we charge will appeal to customers as they consider the lower CO2 footprint. Additionally, the lack of transparency, potential issues concerning environmental protection, remediation, and labor standards regarding Chinese products are significant factors," he explains.

Urbix also highlights its unique process—one that does not utilize hydrofluoric acid—making it less harmful to the environment.

The anode market currently encompasses both synthetic and natural flake graphite, with the latter making up around 35%. Demand for natural flake graphite is anticipated to rise, given that synthetic graphite is pricier and considerably more carbon-intensive to produce. In contrast, natural flake graphite is simply mined, concentrated, and purified.

Getting non-Chinese graphite projects over the line

The availability of non-Chinese graphite anode supply is still in its infancy. Gregory emphasizes the necessity for the government to avoid extending the IRA subsidy regime to support its development.

"To establish a non-Chinese supply chain successfully, there must be strict implementation of the IRA legislation. Governments should invest at the project level, partnering with equity funds to mitigate risks associated with mining projects," he states. "They will need to select winners, which is a common practice in China."

Overall, optimism persists regarding the ability to expand the graphite industry rapidly. Given the broad availability of graphite and the comparatively lower costs associated with its mining in relation to complex cathode components like cobalt and lithium, the potential for growth remains strong.

Moreover, despite the slower than expected uptake of electric vehicles, the transition to greener technologies is viewed as inevitable, though experts emphasize the importance of acting with urgency.

"Establishing a mine and processing facility takes considerable time, and material must undergo testing by battery makers. It is crucial for the government to recognize this urgency," Gregory insists.

China could limit or outright ban graphite exports at any time, as it has already begun requiring export licenses since last year. Graphite exports from the country fell from 81,000t to 58,000t from 2020 to 2024.

Furthermore, global demand for graphite is projected to surge. Jacquemin notes that his company anticipates a six to seven-fold increase in demand by 2030. Similarly, Statista estimates that batteries will require nearly 700,000t of natural graphite by 2030, a substantial rise from 133,000t today.

"There truly is no time to waste," warns Jacquemin.

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