Investors have been warned about a looming oversupply in the graphite and lithium sectors — and it looks like they are starting to listen.
For those inhabiting under a rock without Wi-Fi, both elements are crucial to the electronics age and the development of superior batteries for electric batteries and home energy storage.
While this growth thesis remains intact, the short-term supply and demand is not encouraging, especially for graphite.
In a report on both wonder materials, Patersons Securities analyst Jason Chesters says the current dominant markets for graphite demand — steel making and lubricants — are subdued.
“Increased demand for graphite from the growth in the lithium ion battery and expandable graphite markets is, as yet, insufficient to offset (these) factors.’’
Chesters estimates the global graphite market at a mere 2 to 2.2 million tonnes in 2015, split roughly evenly between synthetic graphite and natural graphite.
In comparison, ASX graphite gorilla Syrah Resources (
SYR) intends to produce 350,000 tonnes a year from its Balama project in Mozambique, which is under construction.
Down the road in Tanzania, the less advanced Magnis Resources (
MNS) targets 220,000 tonnes. Also in Tanzania, Graphex Mining (
GPX) and Kibaran Resources (
KNL) account for another potential 109,000 tonnes.
“New projects intended to come into production over the next few years are targeting combined production in excess of two million tonnes per annum of flake graphite product, many times that of the expected opportunity and current market demand.’’
In China, the firm estimates, 50-60 per cent of capacity has been shut down because of environmental issues.
“While some capacity may be permanently shut down, it is likely that a significant tonnage could be reintroduced once the market improves to a point that economics dictate.’’
Despite the hoopla, graphite prices have been “broadly in decline” since peaking in 2012, with natural flake prices retreating 65 per cent.
As with lithium, the market is opaque because prices (and specifications) are directly negotiated between buyers and suppliers.
The lithium price has fared better, buoyed by renewed Chinese demand and a shortage of supply on the spot market.
Once again the market is minute — 174,000 tonnes of equivalent material, forecast to grow by 83,000t by 2020.
The leading graphite stocks have been sharply lower since June. The lithium plays, while trending lower, haven’t done so badly.
The Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author does not own shares in the companies mentioned.
(20min delay)