Hello NL....I read the letter and I have the following comments:
The graphite industry is extremely complex with very little information available on any applications with the exception of what is shared among new starts (refractories, steel, expandable graphite) and what the Chinese wants everyone to know. There is practically no information available from any other established graphite producer with the exception of Asbury, who is a processor and purchase graphite from Mexico (amorphous), China (flake), and Sri Lanka (vein) and Asbury provides information that will benefit them and protect their position in the US and European markets.
GPX MD has made valid comments as it pertains to the Chinese, but they are NOT the only market of focus for many applications as well as traditional and advanced graphite products. Yes, it is true that the majority of expandable graphite is made in China, but there are producers in the US for internal use and not for resale. The process to manufacture expandable graphite requires significant CAPEX, permits, and other factors to be able to produce commercially; hence why China controls the production of expandable and expanded graphite.
1. Currently, Chinese flake production is estimated to be running at ~65% to 70% capacity after government consolidation, with several graphite producers capable of producing more than 100,000 MT per annum with the ability to ramp up in short notice. Even at 90% capacity, the Chinese believe there will not be enough available flake to meet the demand for expanded, expandable, and battery grade graphite products, hence many Chinese processors have engaged several startups with MOU's that have no real legal consequences if the new start never produces a single MT of flake concentrate.
The most prevalent reason there have been no "real sales or supply agreements (take or pay)" in graphite is that outside the current supply chain, not one new start has started producing natural flake graphite only exploration, testing, and most of all the lack of capital to move forward. If you have reviewed the many startup CAPEX requirements, they range from US$ 50 million to more than US$ 250 million; all seeking to debt finance without success. Syrah was able to secure necessary capital through a capital raise with investors at AU$ 6.00 per share. There are two brownfield flake operations that have potential of coming on line in the next 12 to 18 months and they are OGL and possibly QGL (VXL) if they can recapitalise. One example brownfield operation that restarted in the past 6 months is Gecko Graphite-Nambia (IMERYS).
2. As for SPG grades, the Chinese dominate the market in production and direct sales to customers and the focus of almost every graphite startup has been to focus on selling to Chinese SPG processors. Many have signed MOU’s with those very processors. It is rarely mentioned that sales of based feedstock (-195) to Chinese SPG processors will be at very low prices ~ US$ 400 to US$ 500 post Syrah intro into the market. The current natural graphite flake market consumption is ~ 450,000 MT per annum and Syrah is planning on introducing 30% to 40% in additional supply over the next 6 to 12 months without the demand to support it. This in turn will drive down graphite prices as the Chinese react to the new market entrant. Basic macro and micro economics.
The main battery applications that use the most anode graphite are consumer products, E-Bikes, and medical device with cars slowly increasing each year. In 2016 according to Bloomberg, 654,000 EV's were sold worldwide.
Even with all the battery testing being done by each company under lab controlled conditions means very little if they only sell graphite concentrate feedstock to a processor with no control on spheriodisation, processing, or coating technologies; all of which are IP for which ever Chinese processor purchases the graphite. Whatever IP is used to process graphite concentrate will not reflect any of the testing done in labs using, in most cases, non-commercialised equipment, processes, and methods done by the graphite startups. Also, only qualified ISO 9001 certified, commercial SPG production can move forward with final qualifications as lab scale products are only the first step in a lengthy, strictly controlled, and highly technical and government regulated qualification process.
You cannot easily substitute graphite signatures to a qualified ISO 9001 customer, as not all graphite resources are the same in chemistry or performance, and doing this can create potential product failure, violate government regulations, and put battery manufacturers / suppliers at significant risk. Any new supply of SPG graphite to a battery manufacturer will have to be ISO 9001 certified, and will take up to 3 years to qualify, not including field and trial testing; so even if demand for SPG products increase, there will be a supply lag until the new signature SPG is qualified. Also, not every SPG product will work in every battery as there are variations in chemistry, format, size, application, and any government restrictions including no supply of Chinese processed graphite can be used in ANY government for DOD or DOE, in the US, UK, CA, NZ, JP, and AU as examples.
Syrah may have the capability of supplying flake graphite to anode processors, but there are many hurdles to overcome as discussed above before one KG of SPG Anode graphite processed from Syrah production is sold or shipped to a lithium battery manufacturer.
3. Finally, as for substitution risk, SPG natural flake graphite will not work in every single battery chemistry and flake graphite is limited in morphology whereas primary synthetic anode powders can be manufactured in various morphologies, thicknesses (Lc), precise PSD, OAN (DBP), conductivities, limit the amount of D10 axis levels for different electrode densities, and control specific elements (i.e. Si, S, V, Fe, and Ca) to less than 5 ppm for electrochemistry applications.
Primary synthetic graphite anode powders have been used for many years and are not as expensive as the public narrative leads everyone to believe. Yes, there are specific grades for specialty battery applications that are expensive, yet many primary synthetic anode grades are not. Natural flake SPG grades are another product available that has the ability to be supplied in large quantities in the next 10 to 20 years where as primary synthetic powder manufacturing will not be able to meet the demand.
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