What is the prognosis for graphite in 2022? Market observers outline the events of the last year and the key trends to monitor in the coming 12 months.
Many industry experts believe that graphite will continue to play a major role in EV batteries for at least the ensuing ten years despite debates regarding battery chemistry modifications. In the form of the intermediate material spherical graphite, both synthetic and natural graphite are employed in lithium-ion batteries’ anodes.
With commentary from industry experts, the Investing News Network (INN) examines the important developments in the graphite market in 2021 and what the view is for 2022.
Graphite trends 2021: Issues with shipping and electricity costs
Graphite started 2021 out strong after a turbulent 2020 that saw supply networks put to the test as economies collapsed owing to the COVID-19 epidemic.
Because of unusually stringent environmental inspections and closures in China, prices for natural flake graphite started the year a little higher than anticipated, Wood Mackenzie’s Suzanne Shaw told INN back in July.
As routes were restored during COVID, she added, “there was also significant maritime disruption early in the year, with cargo and boats not where they should be.” “Higher-value cargos received priority due to limited availability, while flows of lower-value raw materials were impeded. In Q2, this condition improved.
Benchmark Mineral Intelligence statistics show that prices were largely stable throughout the first half of 2021.
According to George Miller, an analyst at the company, at the end of H1, “prices for +100 mesh flake concentrate, across all purities, have increased by about 5 to 10% year-to-date, while pricing for all other grades has moved less than 5 percent this year due to continued structural oversupply in the graphite market.” Additionally, the current state of global transport is preventing rising pricing pressure.
In August, prices changed as a result of the energy crisis, which affected producers and hindered output. Since the production of spherical graphite from natural flake and the production of synthetic graphite are both known to consume significant amounts of energy, battery grades were notably impacted by rising power prices.
As there is still a significant amount of overcapacity in China, it was anticipated that manufacturing there would increase to satisfy the growing local battery demand.
At the conclusion of H1, Shaw stated, “However, the general trend is that China is exhibiting less hunger on the raw material side and investing in higher-value downstream businesses instead of exploration/mining across most mineral sectors.” It will keep raising the amount of flake graphite it imports on its own.
Overall, Shaw told INN in a more recent conversation that the demand recovery in the battery industry in 2021 was more than anticipated in the wake of the epidemic.
The greatest surprise, according to her, was the interruption in Chinese supplies during the second part of the year due to power constraints. The power outages coincided with consumers’ typical stock-building for graphite before winter closures.
Although Shaw stated he thought the electricity problems had already started to improve by the end of 2021, the high costs for graphite had persisted through the season. Between May and December of last year, the price of Chinese flake graphite on average jumped by 25%. Power restrictions are anticipated to continue through Q2 of 2022.
Outlook for graphite in 2022: Supply and demand
Analysts anticipated that by the end of 2020, EV sales will have boosted graphite demand from the battery sector, providing growth prospects for both synthetic and natural graphite.
Batteries are predicted by Wood Mackenzie to develop extremely rapidly in 2022, while most conventional steel-based applications would grow considerably more slowly due to a downturn in the Chinese market.
The switch to EAF steel techniques in China, India, and other Asian nations will continue to spur development for electric arc furnace (EAF) steel electrodes, according to Shaw.
All of the major areas will see an increase in battery demand, but China will see it the most.
In general, Shaw predicted that the market for lithium-ion batteries will increase by 35% to 602-gigawatt hours by 2022. “Such big increases in both natural and manufactured graphite will be possible with such large growth.”
According to statistics from Benchmark Mineral Intelligence, the demand for natural graphite from the battery sector was 400,000 tonnes in 2021, and it is anticipated that this amount would increase to 3 million tonnes by 2030. About 300,000 tonnes of synthetic graphite were consumed in 2021, and 1.5 million tonnes are anticipated to be consumed by 2030.
Miller stated in a webinar in December that “we do expect recycling to cover some of these gaps, but this isn’t really expected to reach the appropriate scale until around 2030.” Therefore, in order to fulfill any potential future need, the current emphasis is actually on synthesizing and mining this material as rapidly as feasible.
Graphite, whether synthetic or natural, weighs between 50 and 100 kilos and is one of the most significant components of any EV battery in terms of volume.
By 2030, the industry would have grown 15 times faster than current demand, Miller added, exceeding the modest increase and demand from industrial applications. As long as junior miners are given appropriate capital in the near future, there is still time to address the shortages in the natural and synthetic graphite markets, unlike some of the other crucial mineral markets.
Having said that, it’s crucial to remember that just a few varieties of natural graphite supply are pertinent to and appropriate for the lithium-ion supply chain.
The largest obstacle to using natural graphite as a battery input, according to Miller, is this. This may prevent projects that are still in development from adding capacity. The expert pointed out that if all of the projected supply were to reach the market, it could be able to balance out demand until 2029 or 2030, but because of the restrictions on what can be classed as material, the tale ends up going in a different way.
The mesh size inputs for the battery supply chain must be fine to medium flake, according to Miller, who also stressed the need for uniformity and high purity (about 94 to 95 percent carbon). Low-impurity flake graphite is required for the lithium-ion supply chain in order to preserve the final product’s quality and durability.
In a similar vein, Shaw claimed that the key difficulty for graphite miners is proper processing.
At the proper flake size distribution and carbon grade, “it might take some time to ramp up to optimum rates,” she noted. It can be a lengthy and challenging procedure for those (graphite miners) interested in battery grades to qualify for their product.
China will continue to hold a leading position in the supply of natural graphite and will significantly boost its output. However, Shaw predicted that when new supply begins to emerge from Africa and other regions of the world, China’s share of the world’s supply would begin to decline. China is eager to switch from mining to higher-value downstream battery-grade goods, and its flake graphite imports are rising.
Graphite forecast 2022: Price trends and important variables
Wood Mackenzie predicts that prices would increase over the first several months of the new year, or at least until production resumes after the Chinese new year festivities.
Then, Shaw told INN, “prices could moderate a little in the middle of the year before climbing once more with winter shutdowns.” Longer term, prices are anticipated to rise along with increased demand and a contracting market, at least until more capacity can be brought online.
The market share of natural graphite vs synthetic graphite is a trend that most investors in graphite track. Synthetic graphite anodes now hold the bulk of the market share and makeup around 57 percent of the anode market, according to Benchmark Mineral Intelligence.
Miller noted that for a variety of reasons, “going forward, we do expect this to tilt in the direction of natural graphite anodes to approximately a 50/50 mix.” These factors include a limited capacity for graphitization, higher anode material costs for synthetic graphite, and existing environmental issues with the synthetic graphite supply chain.
Additionally, according to Wood Mackenzie, graphite will continue to play a significant role in battery anodes.
Both areas have the possibility for tremendous expansion, according to Shaw. “We anticipate that the demand for synthetic graphite in batteries will increase at a somewhat faster rate than that of natural graphite.”
How western automakers stay up with China, which has emerged as the dominant player in all stages of the anode supply chain, is another significant development for graphite investors to monitor in the next year.
It’s interesting to note that US-based Tesla (NASDAQ:TSLA) moved to secure graphite supplies from leading supplier Syrah Resources before 2021 came to an end (ASX:SYR,OTC Pink:SYAAF).
The ASX-listed firm will use its Louisiana facility to process graphite from its Balama mine in Mozambique and will provide the EV manufacturer with anode graphite material for an initial four years. Additionally, Tesla has the choice to offtake extra tonnage if Syrah increases its capacity above 10,000 tonnes annually.
