Shifting battery chemistries complicate forecast...

Shifting battery chemistries complicate forecast
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Use in the EV sector is underpinning graphite demand, however as battery chemistries continue to shift market supply and demand fundamentals could also change.

The rapid evolution of battery chemistries has posed significant challenges. While the shift in cathode materials from nickel ternary (NMC) to lithium iron phosphate (LFP) in China has garnered much attention, similar transformations are also occurring within the anode market, explained Willoughby.

“China now primarily uses synthetic graphite anode materials as it’s faster to build out new production and easier to get the raw materials,” he said. “However, that has led to a massive oversupply for synthetic due to the number of new companies in the market, and in the natural [graphite market] demand has really fallen away in the last year.”

While NMC cathodes and natural graphite anodes are still quite popular outside of China, slower demand growth in 2024 has seen many of the major anode producers cut back output, he added.

Looking more long-term, Willoughby admitted the market could become opaque.

“It’s been a challenge to keep the ever-evolving supply and demand dynamics in check, particularly when the market has to increasingly consider regional regulations like the Inflation Reduction Act,’ he said. “We see China continuing to operate at a surplus over the next decade because of its existing capacity, but the rest of the world still looks to need more capacity for both natural and synthetic anodes if it wants to meet its own demand.”

This position was reiterated by Benchmark Intelligence’s Alderson who referenced the mounting geopolitical tensions between the East and West as a pain point in the long-term ex-China market buildout.

“China dominates not only natural graphite production (76 percent) but also downstream markets, controlling 79 percent of natural graphite anode and 98 percent of synthetic graphite anode supply globally,’ he said. “This highlights that the deeper into the supply chain you go, the more entrenched China’s dominance becomes. They form the backbone of the anode supply chain, and it will be a challenge for the West to break.”

Alderson pointed to China’s December 3, 2024,implementation of an immediate ban on dual-use exports intended for US military applications, along with heightened end-use reviews for exports like graphite to the US.

Building a North American supply pipeline

To offset Chinese control, the US has taken notable steps to onshore supply.

“Since the US IRA’s announcement in August 2022, over 500,000 tpa of anode capacity has been added, over a 200 percent+ increase,” said Alderson.

This move has been supported by government funding.

In November, 2023 South Star Battery Metals (TSXV:STS,OTCQB:STSBF), received a US$3.2 grant from the Department of Defense (DoD) under the IRA to advance its flagship BamaStar graphite project in Alabama.

Similarly, Graphite One’s (TSXV:GPH,OTCQX:GPHOF) Alaska-focused subsidiary was the recipient of a US$37.5 million DoD grant in July of 2023, to cover costs associated with “accelerated Feasibility Study” on its name sake project.

In September of the same year, the company penned a US$4.7 million contract with the DoD’s Logistics Agency to develop a graphite and graphene-based foam fire suppressant as an alternative to incumbent PFAS fire-suppressant materials, as required by US law.

“Private companies are also ramping up onshoring efforts by inking offtake agreementswith U.S. anode producers, setting a record in 2024 for such deals,” said Alderson.

“Despite these advancements, North America faces a 200,000 tpa market deficit in 2024, expected to grow as EV demand accelerates. As such, notable investment will be required to drive growth and achieve any form of self-sufficiency,” he added.

As new North American supply becomes imperative, the sole continental producer Northern Graphite (TSXV:NGC,OTCQB,FRA:0NG), faced challenges in the low-price environment of 2024.

“While we are also moving forward to open a new pit at the Lac des Iles (LDI) and restart the plant at a higher throughput in January to meet rising demand, unless we can see our way through to higher prices, long-term supply agreements with battery makers and support from governments in Ontario, Quebec, Canada and/or the United States, the Company will continue to struggle whilst these challenging market conditions prevail for ourselves and the rest of the industry,” Chief Executive Officer Hugues Jacquemin said in the Q3 update.

To aid in offsetting these pressures, Northern Graphite was able to negotiate a price increase with its customers in early January to mitigate inflation and higher production costs.