Dynamics are shifting in the global graphite market, with Australian explorers driving an emerging world-leading production province in Mozambique, and Chinese battery manufacturers seeking higher purity supplies as electric vehicle sales surge.
Historically, China has dominated the graphite market and, until recently, accounted for around 70 per cent of the world’s supply and roughly 80 per cent of global demand.
But the emergence of the lithium-ion battery, in which graphite is a key manufacturing component, has changed the game, according to Triton Minerals managing director Peter Canterbury.
Graphite has many traditional industrial applications, with the material used to cool mobile phones, as well as heat shields for vehicles from automobiles through to spacecraft and in nuclear power generation facilities.
While the effects on the lithium market from the electric vehicles boom seems widely understood, Mr Canterbury said understanding of the impact on the graphite market was not.
“Graphite is a bit different to lithium, but there is three times as much graphite in a lithium-ion battery than there is lithium,” he said.
“It should never have been called a lithium-ion battery.”
For batteries, graphite needs to be of extremely high purity, with large flake graphite the preferred deposit for manufacturers.
But even large flake graphite requires significant processing to be brought up to battery standard, with even more intensive processes required if the deposit is a lower grade.
“China is running out of large flake graphite,” Mr Canterbury said.
“There is still plenty of graphite in China, but for the large flake graphite, which gets higher purity generally, it is running out, so they are looking for sources of large flake graphite.”
China is expected to become a net importer of graphite as early as next year, as demand continues to grow for battery-making materials on the back of the electric vehicles boom.
Forecasts from Bloomberg New Energy Finance show sales of electric vehicles are expected to grow from 1.1 million worldwide last year to 11 million by 2025, then surging to 30 million by 2030 as electric vehicles establish cost advantages.
China is expected to lead the transition, with sales already surging in the first few months of 2018.
Data from the China Association of Automobile Manufacturers showed that 73,145 new energy vehicles were sold from January to April, an increase of more than 43,000 on the same period in 2017.
Advancements in the take-up of electric buses was expected to be even more rapid, Bloomberg said, with its analysis showing electric buses would be more cost-effective than conventional buses by 2019.
There are already more than 300,000 e-buses on Chinese roads, with electric models forecast to dominate the market by the late 2020s.
Energy storage is also expected to become a major market post-2021, as household renewable energy systems become more widespread.
The emerging major graphite source is Mozambique’s Cabo Delgado province, an area of focus for ASX-listed Syrah Resources, Battery Minerals and Triton.
Graphite deposits in Cabo Delgado are considered the world’s highest grade, and as such, explorers have been reporting significant demand from potential offtake and project partners.
Syrah has the first-mover advantage, having stated production at its Balama mine in November last year, and becoming the first significant exporter of graphite into China in January.
The company is targeting production of between 160,000 tonnes and 180,000 tonnes this year and expects to account for around 40 per cent of the world’s graphite production by 2020.
Syrah’s suite of offtake partners includes Jixi BTR Graphite Industrial Co, a subsidiary of Shenzhen BTR New Energy Materials, the world’s largest manufacturer of battery anode materials for lithium-ion batteries.
BTR will take 30,000 tonnes of graphite from Balama in its first year of operation.
A binding sales agreement is also in place with anode manufacturer Zhanjiang Juxin New Energy Materials Co for 20,000 tonnes in 2018.
Battery Minerals is positioning itself to be the second to market among Cabo Delgado players, targeting production of 50,000 tonnes of graphite concentrate annually by the second half of next year.
Construction is under way at Battery Minerals’ Montepuez operation, with first shipments of graphite concentrate are expected to start in the second half of next year.
Battery Minerals’ offtake partners include Qingdao Keshuo New Materials Technology Co, Qingdao Black Dragon Graphite Co and Qingdao Guangxing Electronic Materials Co.
All three of the Shandong-headquartered companies have contracted to take 10,000 tonnes per year for the first three years of operation at Montepuez.
However, Battery Minerals has been forced to seek alternative financing options for the Montepuez project after a deal with Resource Capital Funds was terminated in early June.
RCF said it could no longer proceed with a $US30 million ($40.6 million) debt and equity funding agreement as the graphite market no longer met its investment criteria.
Battery Minerals managing director David Flanagan said while he respected RCF’s decision, the outlook for graphite prices and demand remained highly attractive.
“Our view is that the graphite market outlook continues to strengthen, driven by the impending surge in demand for graphite from lithium battery manufacturers as well as refractory products and the rapidly growing expandable graphite market,” Mr Flanagan said in a statement to the Australian Securities Exchange in June.
Mr Flanagan said the financing delay would result in the first shipment from Montepuez to be deferred from June 2019 for at least three months.
Triton is on a similar timeline to Battery Minerals, with first production from its Ancuabe operation expected to occur in the second half of next year.
The explorer’s board of directors approved the development of Ancuabe on June 4, with construction to begin later this year.
Ancuabe is expected to produce around 60,000 tonnes of graphite concentrate annually.
Triton has entered offtake agreements for up to 50 per cent of that production, while Mr Canterbury described demand from potential project partners as substantial, particularly from Chinese groups.
In May, Triton secured its second Chinese offtake partner for production from Ancuabe, adding a deal with Qingdao Chenyang Graphite to an agreement with Tianshengda Graphite Company.
Triton is also in discussions with potential joint venture partners in China, for its Nicanda Hill deposit, also located in Cabo Delgado.
“Capo Delgado province in Mozambique will be the largest graphite-producing province in the world in the next year or so,” Mr Canterbury said.
“There is probably going to be around 400,000 to 500,000 tonnes of graphite coming from that area, with expansion to grow to 600,000 to 700,000 tonnes.
“And all of us are looking like having production over 95 per cent purity, which in China they just don’t get.”
At the same time that Mozambique is emerging as a graphite production hotspot, China is pulling back on its production due to Beijing’s commitment to tighter environmental controls.
Processing graphite to the purity required for batteries has historically been done in China using hydrofluoric acid, with wastage dumped into wastewater systems.
With the new environmental curbs in place, China has been progressively shutting down its most pollutive graphite plants and upgrading others, with the result a much lower production profile.
“Some of these facilities are pretty old and run down,” Mr Canterbury said.
“Last year, there was a crackdown in Shandong Province, there were 73 operating plants and they closed all but two.
“Some have reopened, but they are being forced to go into industrial zones where the water can be treated.
“There is a consistent theme in China that their economic development needs to be not at the expense of the environment, and that’s why the interest from China in offtake is there.
“You can see improvement going on and the government is quite involved in that.
“It’s about getting higher quality product, so they can process it locally and have less environmental damage globally by not having to purify it as much, but also to take higher quality product into China and to value add.”