It's a regular question: Why is the price not moving, after large offtakes have been announced?
Could it be that there are doubts about the assumptions underpinning the "basket price"?
Assumptions? What assumptions? Well, there is one big assumption, which may or may not be valid. And that is, that the pattern of demand, across the size spectrum of graphite flake sizes, will remain roughly the same as it has been in the past, and is today. That is, if large and jumbo flake represent, say, 40% of the market today, then they will continue to represent 40% of the market in the future.
Could that pattern change? Very possibly - and here's how.
Let's assume that the total graphite market grows, as we all hope, and expect, it will, from about one million tonnes to two million tonnes, in the next three or four years. (If the demand doesn't grow like that, we have another problem, because the production certainly will). Where will that growth come from? What are the new applications which will drive that growth?
There are three biggies - anodes for aluminium production, steel and iron recarburisers, and spherical graphite for Li-ion batteries (especially for electric vehicles).
The spheroids in spherical graphite are only about 15-20 microns in diameter, and are therefore made from fine flake graphite, of 100-150 micron size, or less. Bigger flakes just have to be ground down to size, which is very wasteful, and actually costs more money.
For recarburisers, and aluminium anodes, flake size is less important than keeping the levels of specific impurities down to acceptable levels. And most of the major graphite producers look likely to be able to achieve that, at reasonable cost.
What does that mean? Essentially, it says that, for these new, high-volume applications, there is no advantage in using large-flake graphite, and, importantly therefore, no incentive to pay a higher price per tonne for it than they could pay for fine-to-medium flake.
The key question is, where are the new applications which will use the big volume of large flake graphite which will come onto the market? If the market for large-flake is not expanded, and availability dramatically rises, as it obviously will, what will happen to the price of large flake graphite?
This has implications, not only for MNS, but across the graphite industry. Of course, it is particularly relevant for MNS, because of the high proportion of large-to-jumbo flake in the product mix.
Assumptions about "basket prices" do not hold up if one end of the basket ends up selling for half, or less, the price assumed. If large-flake can't be sold as such, will it just be milled into smaller flakes, and sold at the lower price, into the known, high-volume applications?
Current production is, broadly, satisfying the current market. So the billion dollar question is:
Where are the new applications which will use the big, additional quantities of large-flake graphite coming onto the market, from mines opening up in the next two to three years?
Cheers,
Prime1
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