About GraphiteGraphite is a crystalline form of carbon that...

About Graphite

Graphite is a crystalline form of carbon that occurs in natural or synthetic form. The atoms of carbon can be bonded in numerous ways which are called allotropes, of which graphite is one. To make covalent bonds with other atoms, carbon atoms have four elect tons available. In graphite, three of these electrons make strong covalent bonds in a layered, planar structure in graphite and this layer is known as graphene. The bonding between the atom layers is of the much weaker Van der Waals force, allowing graphite layers to slide past each other and be easily deposited on a surface. This is how graphite pencils work and this property also makes graphite a good natural lubricant.*

A relatively unique property for a non-metal material and useful in battery technology in the anode is that the fourth electron of each carbon atom in graphite is free to migrate, which allows graphite to be electrically conductive. Carbon and graphite also have an extremely high melting point, remaining stable at temperatures in excess of 3 600°C. It has the highest natural strength and stiffness of any material, further, it is chemically inert and conducts electricity.* The global graphite trade is dominated by China, commanding up to 70 % of global flake output.

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Woxna Graphite

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Global Graphite Demand (2106)

Woxna Graphite (spherification)

Electrodes (31)Refractories (18)Decarburising (13)Foundries (7)Lubricants (7)Friction Products (5)Graphite Shapes (5)Batteries (9)Other (5)

Source: Roskill, UBS estimates

Source: LEM staff

MiningConventional mining methods are applied when extracting natural flake graphite. In-situ ore grades between 2 to 30 % carbon are typical. The upgrading process of graphite ore is achieved via crushing, screening, grinding, flotation, dewatering and drying at the mine site to upgrade the carbon content and remove impurities. Recovery is generally in the order of 90 to 98 %, and the ore is upgraded to a concentrate which grades 90 to 97% carbon.*

By passing through different size mesh screens, natural flake graphite concentrate is sorted into different sizes. The shorthand convention is to characterize particle size by the mesh designation. A”+” before indicates that the particle was retained by the sieve, while a “-” means the particles pass through it. Jumbo flakes typically describe those in the +50 range, while Large flakes are +80/-50, meaning the large flakes have passed through the 50 screen but been retained by the 80 screen. For industrial uses, jumbo and large flake sizes are preferred including blast furnace steel making, castings, lubricants etc. In nuclear applications, super-jumbo size flakes are used. However, flake size is less relevant for high purity battery grade applications as the graphite is micronized to less than 30 micron prior to shaping and purification.*

End uses
There are many uses for graphite due to the various properties and product qualities. The main applications of graphite are for electrodes, refractory materials, anode materials for lithium ion cells and primary batteries, friction materials and lubricants.** At present, steel making and metal transformation is the dominant area of use. Batteries are currently only a small part of the graphite market, approximately 10 %, but one which is forecast to grow the fastest.* The traditional markets for both natural graphite and synthetic graphite are detailed below.

Traditional use of natural graphite
Refractories – 18 %:
Natural graphite is used due to its stability and ability to withstand temperatures above 538°C, as lining of furnaces, kilns, incinerators and reactors. Natural graphite is preferred over synthetic graphite due to cost and lower porosity, which reduces oxidation and other reactions. The iron and steel industry, which uses blast furnaces, account for around 70 % of the production of all refractory products.

Foundries – 7 %:
Foundries are used to cast molten metal into a mold and the major market for castings is the auto-industry.

Lubricants – 7 %:
The weak bonding between graphite layers allows them to slide past each other with very low levels of friction. Graphite is used as a lubricant in the form of solid powder, or as a film or within a fluid dispersion. Both synthetic and natural graphite compete in this space and cost vs purity define which is used.*

Traditional use of synthetic graphiteElectrodes – 31 %:
In steel production or production of ferro-alloys, aluminum and chlorine, graphite is used as an anode in the electric arc furnace (EAF) method. The largest use is in steel making, EAF processes account for around 26 % of global steel making, centered more in developed markets withlarge scrap pools such as North America (where 62 % of steel production is EAF). High purity graphite electrodes are used to conduct electrical current to melt scrap steel. They are replaced every 8 to 10 hours and are a very minor (approximately 2 %) of the cost of EAF steel. Synthetic graphite is preferred to natural graphite as they can handle very high electric currents due to their high purity and conductivity.

Re-carburising – 13 %:
Re-caburising (or carburising) is used to increase the carbon content of steel in liquid form and involves heating steel in the presence of a carbon bearing material. Graphite faces competition from other carbon materials, but is suitable as it is pure carbon and is soluble in molten metal. The carburising market is approximately 3 million tonnes per annum (mtpa) with natural graphite representing around 10 % of this. Most of graphite used is synthetic.

Graphite shapes – 5 %:
Graphite can be easily molded into shapes which are used in high temperature applications. Graphite shapes are used in the aerospace, auto, industrial machinery and electronics industries. Around 90 % of graphite used in shapes is from synthetic graphite.*

BatteriesIn 2015, around 80 % of graphite consumed in the battery sector was directed towards lithium ion batteries. Batteries are currently a small portion (approximately 10 %) of natural graphite demand, but it is the fastest component of demand growth and offers the largest opportunity for expanded natural flake graphite production.*

Graphite is a key anode material for batteries because its high electrical conductance allows for higher energy storage and dispersion. Both natural and synthetic graphite can be used in batteries – despite the higher cost synthetic graphite is currently preferred due to superior technical performance. Synthetic graphite is higher in cost due to the high energy requirement for purification and graphitization. The high cost of synthetic graphite may provide economic motivation to switch to high-purity natural graphite, while natural graphite may also provide environmental motivation due to the lower intensity manufacturing process.

Most battery producers use a blend of both natural and synthetic graphite in anodes to optimise performance.24 Typically, consumer electronic batteries have a higher ratio of natural graphite to synthetic to lower cost (up to 75% natural graphite), however in automotive batteries the ratio of natural graphite to synthetic is 10 % natural and 90 % synthetic due to the insufficient purity of natural graphite products.*

Production of High Purity Spherical GraphiteAfter the first processing steps, natural graphite is of relatively low purity, suitable as a bulk commodity for use within the steel industry.**** To meet battery cell manufacturers specifications for use as the anode in lithium ion batteries, the natural flake graphite must by purified and shaped into small spheres*, at which point the material is referred to a High Purity Spherical Graphite (“HPSG”).

Shaping and spheronising involves rounding the graphite flakes by mechanically grinding and rolling them into small spheres, a process which can result in up to a 50 % loss. After shaping, the natural flake graphite is purified by chemical leaching using acids such as hydrofluoric acid, sulfuric acid and hydrochloric acid to remove impurities and raise the carbon content to above 99.95 % C. An alternative to acid treatment is thermal purification by heating the graphite above 2,000°C. All HPSG is currently produced in China due to domestic access to raw materials, lower production costs and lower environmental standards. However, China’s environmental standards are improving for most processing industries and there are now stricter controls on the use and disposal of reagents.*

HPSG is further processed by coating a single layer of carbon onto the spheres to produce spherical coated graphite. The coating process occurs mainly in China, Japan, Korea and Taiwan.*

The forecast increase in demand for electric vehicles may not significantly influence the global flake graphite supply/demand balance, but will likely provide favorable conditions for producers HPSG.

Natural graphite vs. synthetic graphiteIn most applications of graphite, either natural or synthetic material is typically strongly preferred. For instance, in anodes for EAF steel production synthetic graphite is dominant while in refractories, natural graphite has the greatest market share. In battery applications, competition exists between HPSG and synthetic graphite due to differentiation in cost and performance. Natural graphite tends to have a higher capacity to store a charge (approximately 6 % on average), but loses capacity more quickly and has a lower life cycle than synthetic graphite. In both high and low temperatures, synthetic graphite has greater stability and holds its charge better than natural graphite. Synthetic graphite also operates more reliably and predictability so is favoured for high quality batteries favored by the automotive industry.*

Synthetic graphite is more expensive than HPSG due to the energy requirement during manufacturing, therefore the increased use of natural graphite can lower the cost of battery anode materials. Cost reduction is a high priority in electric vehicle manufacture, to improve cost competitiveness with internal combustion engines as rapidly as possible. Although a high proportion of synthetic graphite will always be required for electric vehicles batteries to maintain appropriate energy to power ratios, it is forecast that automotive lithium ion battery anodes may use increased HPSG to lower cost. HPSG price upside exists, but ultimately synthetic prices will impact prices.*

In addition to dominating graphite flake production, China presently commands up to 95 % of the world’s purification and spheronisation capacity.*° China’s command over the trade presents both a challenge and opportunity for other graphite producers across the world. Overcapacity is difficult to assess in an opaque market, and can negatively impact prices for both flake and spherical graphite, however a growing market with a deep European manufacturing network, will progressively diversify away from a Chinese dominated supply chain.

Regardless, it is highly likely that both natural and synthetic graphite prices will be driven by Chinese prices in the near term, given its dominance in the trade.**°

Sources:
*Global Commodities, Lithium and Graphite: Driving Disruption, UBS 2017.
**Study on Data for a Raw Material System Analysis: Roadmap & Test of the Fully Operational MSA for Raw Materials, Deloitte., 2015.
***Global Commodities, Lithium and Graphite: Driving Disruption, UBS, 2017.
****Möjligheter för nya metallvärdekedjor i Sverige, Tillväxtanalys, Copenhagen Economics 2017.
*°Flake’s eventual form that goes into battery anode after coating.

flake
Current graphite prices - US$/tonne
(94-97%C)

1		XL flake	,600/t	(+50 mesh)
2	Large flake	$950/t	(+80 mesh)
3	Medium flake	$800/t	(+100 to -80 mesh)
4	Small flake	$500/t	(-100 mesh)

After peaking in 2012, graphite prices experienced a sharp drop due to the slowdown in the Chinese economy and a lack of growth in western economies. Since that time they have been sideways to down as the market waits for continuing growth in the EV and the lithium ion battery industries to use up excess capacity in China. The capacity issue was exacerbated by the commissioning of a large new mine in Africa. The mine was well over budget, only operated at 50 or 60 per cent of design capacity and was consistantly cash flow negative until being shut down. This has caused some of the surplus production capacity in China to be used up. However, substantial new sources of supply are urgently needed if the expectations of automobile and battery makers are to be even partially realized.

Lithium ion batteries are now approximately 25 per cent of graphite demand and continue to grow rapidly even though the uptake of EVs has been slower than anticipated. Almost all battery anode material is made in China from small flake graphite because it is plentiful and cheap. The current picture for large flake prices is much better as Chinese production is declining, the African operation does not produce much and demand is growing. Benchmark Mineral Intelligence estimates that the major auto makers have committed over US$300 billion to developing EVs and that there are over 100 LiB mega-factories in the pipeline. These factories represent over 2,000 gWh of LiB production capacity which in turn equates to 800,000 tonnes of new annual graphite demand by 2023 and 1.4 million tonnes by 2028. As a result, the outlook for graphite demand and prices is very bright and the need for secure western sources

How is graphite priced?

There are no standard, quoted prices for natural graphite and there is no spot or futures market. Companies such as Benchmark Mineral Intelligence and Fastmarkets IM are paid subscription services that provide pricing information based on periodically surveying buyers and sellers. Actual transactions in the marketplace are largely based on direct negotiations between the buyer and seller. Graphite prices are also a function of flake size and purity with large (+80 mesh) and particularly XL flake (+50 mesh) and 94% plus carbon varieties commanding premium pricing. Prices for +80 mesh large flake exceeded US$1,300/t in the late 80s but crashed to US$600-750t in the 90s as Chinese producers dumped product on the market. During this period there was essentially no exploration and no new mines were built in the west.

Graphite prices did not start to recover until 2005 and well surpassed US$1,300/t with large flake selling for up to $3,000/t in early 2012 with some shortages reported. Price appreciation was largely a function of the commodity super cycle and the industrialization of emerging economies as new, high growth applications such as Li ion batteries ("LiBs") had not yet had an impact on demand or consumption. Graphite prices subsequently again declined to the $750/t area for large flake graphite due to the strength in the US dollar, the slowdown in China and the lack of growth in Japan/Europe/US. While they have since recovered somewhat, prices remain below the level required to stimulate the development of new mines.

Lithium ion batteries were a very small part of the market seven or eight years ago but have been growing at over 20% annually due to the explosion in the use of cell phones, lap tops, cameras, power tools, etc. LiBs now account for approximately 25% of the graphite market and are expected to continue growing rapidly due to the increasing sales of electric and hybrid electric vehicles as well as grid storage solutions. These applications use much larger batteries, are much larger markets than the small device market and are still in their infancy. While China has surplus small flake production capacity, which is used to make the anode material for lithium ion batteries, the potential demand from LiB manufacturing capacity that is currently under construction is significantly higher than the extra capacity. This should lead to higher prices in the future.

Chinese production of large and XL flake graphite is declining as traditional mining areas in Shandong Province are depleted or shut down for environmental reasons. At the same time, industrial demand for the larger flake sizes is growing strongly. As a result, the outlook for large and XL fake prices is more positive.