Rewriting the book on graphite
By: Alisha Hiyate
By now, you’ve heard the pitch. Graphite is the old mineral made new again with high-tech potential that’s about to explode.
Until now, it has been valued largely for its ability to withstand high temperatures in steelmaking, but new applications making use of its unique combination of properties — high strength, light weight and conductivity — could mean a graphite revolution on the horizon.
Not only will demand for this form of carbon increase as lithium-ion batteries and electric vehicles (EVs) gain traction, and with the growth of new applications such as nuclear pebble bed reactors, but there’s also the added potential of graphene, a new material that could have far-reaching implications in electronics and make for lighter, more fuel-efficient aircraft and cars.
But even though the market is growing, the story is a little more complicated than it may seem.
Graphite prices tanked during the financial crisis, then started to take off in the summer of 2009.
While prices have increased dramatically over the past few years for one type of graphite, known as natural flake, rising demand hasn’t been the cause.
Like rare earth elements, which ignited investor interest in 2009, China dominates graphite production. After flooding the market with cheap graphite in the early 1990s, rendering mines elsewhere unprofitable, the country now produces 80% of world supply.
Stephen Riddle, CEO of Asbury Carbons, a New Jersey-based graphite distributor and processor that has been in business for 117 years, says that when demand started to come back for graphite in 2009, producers were caught off guard.
“The mines had trouble keeping up short term because they had cut back capacity, and also, they were preparing for the winter months,” Riddle says, explaining that most of the world’s natural flake graphite comes from mines in China’s Heilongjiang province that close in the winter.
At the same time, China has closed down or consolidated some production, to better control environmental issues and protect graphite reserves.
Adding further pressure to prices, in January 2010, the Chinese government started going after graphite exporters that had been dodging or underpaying the 20% export tax on graphite, sending exports down and prices up. (China also has a 17% value-added tax on the material.)
It all added up to a temporary supply crunch. Since last summer, however, prices have levelled off, and have recently stabilized at US$2,000-US$2,500 per tonne.
The graphite market
At the moment, Riddle says there is no shortage today of natural graphite.
But current prices, which he describes as fair, are high enough to justify new mines outside of China — hence the rush of juniors to acquire graphite properties and the buzz around them that propelled many graphite stocks 200% to 400% higher between December and April. (At presstime in May, graphite stocks had lost a little altitude, but were still fairly strong.)
Most of the juniors involved in this boom are targeting natural flake graphite, which is just one component of the $1-billion natural graphite market. The biggest use for natural flake graphite is in refractories, used in the steel industry, with a small amount (5-10%) used in batteries. The price of natural flake depends on grade (it varies from 85-95% carbon in nature) and flake size (bigger is better).
The other forms of natural graphite are amorphous (also known as microcrystalline), which is low-grade (70-85% carbon), inexpensive and mostly used in lubricants, and lump or vein graphite, a rare, high-purity (95-98% carbon) form that accounts for only 1% of the natural graphite market.
The type of graphite used in tennis racquets and aircraft, is actually synthetic graphite, and more accurately called carbon fiber, says Riddle.
“Carbon fiber is 100% manmade and has nothing to do with any of other types of graphite,” he explains.
Synthetic graphite, including carbon fibers, account for 92% of the $13-billion graphite market, according to Asbury Carbons. The remaining 8%, worth $1 billion, is shared between natural flake, amorphous graphite and synthetic graphite powder. All told, the natural flake market is only about 500,000 tonnes a year, Riddle says. (Some estimates put it as low as 400,000 tonnes.)
The biggest share of demand for natural flake graphite, estimated at 35-45%, comes from refractories, heat-resistant bricks, linings and sprays that can withstand the high temperatures necessary to make and mold steel. About 70% of refractories demand is tied to steel.
While that market is growing, there’s some disagreement about the rate of growth. Byron Capital Markets puts the rate of growth at 5-6% a year, but Riddle suspects it’s actually closer to 2%.
The battery market
Many juniors are hoping to sell into the lithium-ion battery market. While currently small, it’s the most important growth market for natural flake graphite.
Lithium-ion batteries contain up to 10 times the amount of graphite as lithium, so the potential is great, especially if electric vehicles (EVs) catch on in the market.
The Nissan Leaf EV for example, has a 24 kilowatt-hour (kWh) battery pack, each one made with 19 kg of lithium carbonate and 38.4 kg of graphite, says Simon Moores, deputy editor of U.K.-based Industrial Minerals.
“If they produce a million of these, that’s nearly 4 million tonnes of graphite,” Moores said at a recent Graphite Express conference in Toronto. “At the moment, graphite is only a million-tonne industry, so that’s the reason people are getting excited about it.”
(That 1-million-tonne figure includes all natural graphite — flake, amorphous and lump, which is only 1% of the market.)
Growth will also come from electronic gadgets, power tools and large-scale energy storage, as well as hybrid vehicles.
At a graphite conference presented by Industrial Minerals in London, U.K., in January, Greg Bowes, the CEO of Northern Graphite (NGC-V), which is advancing the low-grade but very large-flake Bissett Creek graphite project in Ontario, said that more graphite is needed to keep up with projected demand.
“In order to keep in line with EV market projections alone, graphite production has to double. Over 50% of new natural graphite production will not be suitable for lithium-ion batteries.”
While all agree there is high potential for growth in this market, synthetic graphite is the current choice for battery makers, not natural flake. That’s owing to the consistency and purity possible in synthetic material, and is especially true in lithium-ion batteries for high-end applications.
But high-purity (98-99.99% carbon) synthetic graphite is expensive. That could give juniors an edge if they can produce consistent high-purity graphite at a reasonable cost.
“Great strides are being made with natural graphite and we believe that with all of the improvements made, natural graphite could supplant synthetic in the medium term and be a competitor in new battery applications,” says the 2012 Electric Metals Greenbook, produced by Byron Capital Markets.
Another crucial consideration is the process by which battery-grade graphite is produced.
Battery-grade graphite comes in two forms: expanded (which has sheetlike particles) and spherical.
Spherical graphite is a young industry and still in the testing phase, Moores says, and the high-quality raw material needed to make it costs about US$2,500 a tonne.
Moreover, upgrading it comes at a cost. “You’re losing 70% of it when you make spherical graphite,” Moores says. “You can get US$7,000, US$8,000 a tonne (for spherical graphite), but wastage is a big problem.”
In general, the larger the flake size, the less waste there is in the purification process.
But the battery market may take some time for graphite juniors to penetrate.
“To some extent, the whole lithium-ion battery story is a little bit longer-term than what people think,” says Jonathan Lee, a mining analyst at Byron Capital Markets who specializes in battery materials and technologies.
“Even if the EV market were to take off, it still takes time to go through the process of becoming a tier one supplier for the automotive market and that could take years to implement,” he adds. “That being said, there could be that growth in the next 3-5 years if they take off, but in the short term most of the graphite price increase has been due to the actions of China rather than explosive demand from the two applications people have been talking about (lithium-ion batteries and graphene).”
A key question for all graphite juniors is who they will sell their product to, especially for near-term producers.
To some extent, graphite has to be custom-made.
“Because it doesn’t trade on the London Metals Exchange or any type of commoditized market — it’s really an industrial mineral — you have to know what you’re going to sell and you have to have buyers for it. The end-product has to meet a customer specification or a multitude of customer specifications,” Lee says.
“Having an end customer to help you with producing the right material is key. None of the junior mining companies have done that to date to a large measure.”
One big problem for near-term graphite producers is that all the production of anode natural flake graphite for batteries currently takes place in China.
“If they want to supply that market, they’re going to have to sell to China,” Riddle says. “And then they have a 20% disadvantage against the Chinese,” he adds, referring to the country’s 20% graphite export tax Chinese anode graphite producers don’t have to pay when buying their flake. To compete, Western producers would have to drop 20% off of the world market price, which is based on having the export duty.
Riddle estimates it will be two or three years before an anode natural flake plant opens outside of China, and even then, initial production would only be around 5,000 tonnes.
Making spherical graphite is a three-step process, starting with milling and classifying the flakes, purification through acid treating, and then coating the particles. (That last step is the only one that is not yet done in China, but rather in Japan or Korea.)
To that end, Northern Graphite says it has developed a proprietary method of producing spherical graphite that has already been successfully tested for use in lithium-ion batteries. And Focus Graphite (FMS-V) announced plans in May to develop graphite purification facilities that will enable it to upgrade graphite from its Lac Knife project in Quebec, to 99.95% carbon. It’s also planning to develop graphite anode production facilities for lithium-ion batteries. The junior has signed a licensing agreement with Hydro Quebec research institute IREQ, which will provide technology and technological support for the enterprise. Focus wants to start producing spherical flake graphite by 2015 at a plant designed to produce 15,000 tonnes at its peak. The anode plant would be designed to produce 5,000 tonnes of anodes per year.
Investors hoping to cash in on graphene, a new material that could be applied to electronics and to make aircraft and cars lighter, are likely in for a long wait. The material, while exciting, is currently in the research phase. The two-dimensional, ultra-thin material is extra tough, heat-resistant, conductive and flexible.
Riddle says the first likely use for graphene will be in electronics. But manufacturers will want synthetic material — the “Ferrari” of graphene — because of its purity and regardless of price.
“The percentage that they will add will be so small that they’re not really concerned with the cost,” Riddle says.
Where graphite juniors may be better able to serve the market is in non-high-tech applications. Again, Focus Metals announced in December that it had signed a memorandum of understanding with Graphoid and Rutgers University AMIPP Advanced Polymer Center to jointly develop graphene technology applications.
Riddle says Focus is being smart with the partnership by initially targeting lower-cost markets for graphene in the infrastructure, aviation and automotive arenas.
For now, much of the potential for graphite remains just that — potential.
In the short-term, there is some room in the market for new producers, says Byron Capital’s Lee, who believes that a few near-term producers, such as Northern Graphite, have a chance to capitalize on current high prices.
“The number of new entrants than can come into the market is really dependent — especially in the next one to three years — on the actions of China,” he says. “Part of that will be mitigated by the wfact that some existing mines are expanding (in Brazil and India), but there is room for new entrants and there are customers worried about supply.”
Lee also believes that near-term producers are not relying on potential supply but actually being realistic about finding customers today.
Though Riddle agrees that some new production is needed, he questions whether junior miners will get the quantity, quality and timing right.
“I think it is a good product to get into, but short-term, I think too many are going to come in at the same time and kill each other,” he says. “I think they’re going to find out how hard it really is to sell.”
--This is an updated version of a story that originally appeared in the June 2012 issue of Mining Markets magazine.