Graphite

Graphite is a critical raw material used in key industrial sectors like steel production and in the electric vehicle and renewable energy storage space.

While traditional applications still represent about 75% of total natural graphite demand, we anticipate demand for graphite to increase from its use in lithium-ion batteries

Graphite is the largest component of lithium-ion batteries, comprising over 50% of every lithium-ion battery and over 95% of a battery’s anode.

Synthetic graphite anodes currently dominate market share, accounting for over half of the battery anode market. But considering the higher price of synthetic graphite and its sustainability issues (its manufacture is very energy intensive, it comes from a carbon intensive industry - oil, and it is mostly made in China), we expect to see increased natural graphite consumption.

Benchmark Minerals Intelligence predicts the need for 97 new graphite mines by 2035.

We think graphite will be the “in focus” battery material this year — market interest has so far focused on lithium, nickel and cobalt with graphite overlooked, in part because its industrial uses have always been the main driver for demand.

We think the market has underestimated how much natural graphite will be needed by the Li-ion battery industry over the long-run.

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Benchmark Minerals

Benchmark Minerals Intelligence predicts the need for 97 new graphite mines by 2035, assuming 56,000 tonnes/year average mine capacity. Currently, there is no viable alternative to graphite so Benchmark says shortages could last for 20 years. It says graphite production must be diversified outside of China.

Fastmarkets

Commodity reporting agency Fastmarkets forecast the natural graphite market to remain largely in deficit until 2025.

It says that an impending graphite shortage driven by phenomenal demand growth from the EV battery sector as well as delays to new capacity, rising power costs, the drive by new entrants to develop renewable power supply sources, and the need to meet increasingly stringent environmental controls and restrictions will all lead to significantly higher graphite prices in the coming years.

This will reflect both underlying market demand and higher costs associated with graphite production. Fastmarkets expects to see an increasingly dynamic graphite market in 2023, forecasting notably higher prices.

Wood Mackenzie

Energy research and consultancy Wood Mackenzie forecast battery sector demand for raw material graphite to rise by more than 1,400% between 2020 and 2050. It forecasts that natural graphite demand will grow at a CAGR of 7.4% over the next decade, with a supply deficit through 2032 at current investment levels.

Governments globally

Graphite last year made the Critical Minerals list of the Australian federal government, alongside that of the US, EU, Japan and India. Governments are stepping in to support graphite production as there hasn’t been the required investment in new projects to meet the coming demand, nor the imperative for the market to wean itself off its dependence on Chinese supplies — a point that has come into focus amid recent geopolitical tensions and increasing importance of ESG considerations.

What about the bear case?

As graphite’s traditional applications still represent about 75% of total natural graphite demand, pricing is largely dependent on industrial performance. When global crude steel production dropped last year there was a significant downturn in demand from the steel industry that negatively impacted graphite pricing.

However, as new technologies require more graphite and continue to capture a greater share of production, margins between graphite grades have been narrowing (larger flakes typically commanded higher prices than the graphite fines used in EV batteries), reflecting the growth in graphite demand from the electric vehicle battery sector.