full width | single post SYNTHETIC WEIGHSThe second big question...

full width | single post SYNTHETIC WEIGHS

The second big question mark hovering over the segment is synthetics. Battery makers actually prefer synthetics because quality is easier to control and they can be produced most anywhere. In fact, the battery industry accounted for less than 5 percent of natural graphite demand in 2011.

"The uptake in battery growth is a little over hyped, I think, given that most of the graphite demand today for lithium ion batteries is for synthetic graphite," said Jonathan Lee, a battery materials analyst with Byron Capital Markets.

That may change, however. Synthetic graphite can cost more than $20,000 a tonne, while unprocessed flake graphite costs $1,500 to $3,000 a tonne. Add in processing and coating, and the price is about $8,000 a tonne, meaning natural graphite represents major cost savings.

The price differential has analysts and would-be miners speculating that as demand for lithium ion batteries grows and battery makers need to buy more graphite, they will eventually choose cheaper natural flake over synthetic.

"Do I think there's an inevitable switchover? Yes," said Lee. "However, I do think that will take time, and I don't think that it is imminent."

Graphite, which is highly conductive and can withstand intense heat, is now used primarily in refractories for steel making and in crucibles to hold molten metals.

That means any companies that are successful in bringing a graphite mine into production in the near term will look to do business with those traditional customers.

Even so, analysts believe there is space for more graphite production outside China in order to stabilize the market. Already companies in Brazil are expanding output, while two closely held Canadian miners are coming online soon.

"It comes down to people having to be very judicious on companies and projects," said Mackie Research analyst Matt Gowing. "There's only going to be room for a limited number of players."

Northern Graphite, Focus Metals and Energizer Resources Inc are often mentioned by analysts as