Looking forward to 2016, it seems as though positivity in the graphite space is only set to increase.
According to Miller, while industrial markets will continue to dictate graphite demand in the short term (making developments in Europe, North America and emerging markets important), the defining story of the year will be growth in battery-grade graphite. “The emergence of this new industry will solidify next year and start to gather real momentum, driven by electric vehicle uptake and construction of lithium-ion battery megafactories,” he said. Overall, that should lead to “more solid” graphite prices in 2016.
Miller also believes that those megafactories will need to “start securing volumes in the new year” — in other words, they’ll need to start signing supply deals with graphite companies.
Graphite market watchers have been waiting for that to happen since Tesla’s gigafactory was first announced last year, and speculation about which companies it and other megafactory builders will team up with has only intensified since the company signed two conditional lithium supply deals earlier this year.
One of those deals is with Bacanora Minerals (TSXV:BCN,LSE:BCN) and joint venture partner Rare Earth Minerals (LSE:REM), while the other is with Pure Energy Minerals (TSXV:PE). They both excited lithium market participants because they are with juniors that are not yet producing; for that reason, they’ve raised hopes that Tesla will sign graphite supply deals with graphite juniors. However, it’s worth noting that the lithium deals are light on details, and have faced other criticism from analysts as well.
It’s also worth noting that lithium-ion batteries require both natural and synthetic graphite, meaning that megafactory builders will need to source both. As Miller explained, “how this plays out in terms of natural spherical vs. synthetic will tell us a lot about how demand from this sector will develop in the coming years.”
He suggested watching BTR, China’s leading spherical graphite producer, for clues on which way the pendulum will swing. “This company will be a bellwether for what happens in the battery sector [in terms of] consumption of natural graphite vs. synthetic.”
While the idea that Tesla and other megafactory builders may start signing graphite supply deals in 2016 is certainly exciting, market participants are aware that such deals won’t necessarily bring the market out of the woods — at least not immediately.Investor takeaway: Don’t be too hasty
On that note, Miller said that Benchmark sees “significant new supply” entering the graphite market in the next 18 months — Syrah Resources (ASX:SYR) will be one to watch on that front — and noted that the firm’s biggest concern about the space is that this new graphite supply “will enter the market before there are suitable markets to consume this new material.”
Way echoed that concern, commenting, “the greater graphite investment market is promoting the exact opposite of the reality — that there is this huge demand, and mega graphite projects planning to sell up to 300,000 tons a year is possible.” (More of Way’s thoughts on graphite supply and demand can be found in this interview).
Miller did provide some hope, however, noting that graphite juniors have been doing “a lot of work … in building networks of potential consumers and securing offtake agreements in 2015, and we expect that to continue.” He added that it’s also possible that the production of more flake graphite could lead to it being used in other markets, which could be “a big development in the industry’s structure.”
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