Graphite could be poised to ‘do a lithium’

The forgotten mineral of the battery rush is showing signs of a revival after four years on the sidelines, which is why investors might need to brush up on graphite.

Despite being a key battery component, graphite has rarely created the same level of interest as other battery minerals such as lithium, nickel, and cobalt.

The issue which has dogged graphite is oversupply thanks to its long history of use in steel-making and as a refractory to hold molten metal – not to forget its misnamed role as the “lead” in pencils.

Lithium, which has been enjoying a price boom caused by a global shortage, comes from a very different background of minimal demand in glass making, lubrication and even as a medicine to treat bipolar disorder.

Parting of ways

So, when the battery rush started around 2018, and despite graphite being just as important as lithium in batteries (lithium as the cathode and graphite as the anode), there was spectacular parting of price.

As a lesson in the economics of supply and demand it doesn’t get much better than lithium versus graphite, with lithium rocketing up by 500% over the past two years, while graphite has fallen by around 20% – though some high-grade material has crept a little higher.

That disconnect could be coming to an end if two recent reports are a guide with well-regarded Benchmark Mineral Intelligence and Fastmarkets warning that graphite could be on the verge of “doing a lithium”.

Graphite on verge of rebound

For Australian stocks exposed to graphite, the improving outlook should fire up interest after a year of lacklustre trading.

Syrah Resources (ASX: SYR), which led early interest in graphite, has recovered from its 96.5% share price crash (from $6.06 in mid-2016 to $0.21 in early 2020) to now hover at $2.50.

Talga (ASX: TLG), Ecograf (ASX: EGR) and iTech Minerals (ASX: ITM) are also showing signs of revival as the drive to encourage a shift out of fossil fuels into battery powered electric vehicles (EV) accelerates.

Graphite market approaches deficit

Fastmarkets started graphite revival speculation last month when it tipped a flip in the graphite market from a long-running surplus to a modest deficit by the end of 2022.

The change in the market can be traced to steady demand in traditional uses (such as steel making) and a sharp pick-up in demand from battery makers with Fastmarkets forecasting a rise in battery-sector demand from 210,000 tonnes last year to 300,000t this year.

Benchmark took up the graphite recovery theme in a presentation at a battery metals conference in Los Angeles earlier this month where the consulting firm’s chief operating officer Andy Miller said “there are signs of huge momentum building in the battery supply chain.”

“The events of the past 12 months are just a warning sign of what is to come across the raw material market,” Miller was quoted telling delegates.

But Miller also touched on an issue which has confused investors since graphite emerged from its grimy background in steel mills and as a crucible in a metal foundry into a battery metal play and that’s the multiple grades and pricing.

Not all graphite is equal

Quite simply, all graphite is not equal, starting with the primary differences of natural versus synthetic graphite, before considering the attributes of flake graphite versus amorphous, and that’s before getting to a spherical graphite product preferred by battery makers.

Whatever the size and shape of graphite, it is all made of the same material, carbon – which is why graphite in some counties was once burned as coal, it’s cheaper and less reputable carbon cousin.

Investors are welcome to immerse themselves in the trivia of graphite, but they shouldn’t take their eye off the big picture which appears to be showing the commodity is starting to track the trajectory of better known battery minerals cobalt and lithium.

The starting point in understanding that comment is the composition of all major types of long-life rechargeable batteries which have a chemical composition which is between 40% and 50% graphite.

Other metals make up the rest of a battery with mixes of lithium, cobalt, and nickel, as well as some containing manganese, iron and phosphate.

Demand rising

EcoGraf, which is developing a graphite mine in Tanzania and processing facilities in WA estimates every EV requires between 50 kilograms and 55kg of natural flake graphite, which boils down to 27kg of 99.95% high purity battery grade anode.

With demand clearly there, even if currently over-powered by supply, there is a tipping point not far away just as there was for cobalt in 2016, when battery demand exceeded 50% of the market and lithium in 2018, when it also crossed the 50% market share threshold with an ensuing price explosion.

Benchmark reportedly sees demand for graphite over the next decade growing at an annual compound rate of 10.5%, but with supply growth limited to an annual 5.7%.

Until now, the graphite market has been able to meet battery demand thanks to its much bigger supply base compared with lithium and cobalt.

Miller reckons that with the average graphite mine producing 56,000t of material a year there is a need for 97 new mines by 2035, along with 52 new synthetic graphite factories to meet demand from battery makers.

Those sorts of forward-looking estimates always need to be seen as a guide to what might (or might not) happen; but, with graphite there are two trailblazing metals showing what can happen when demand overpowers supply – lithium and cobalt.

Will history repeat and will graphite “do a lithium?”

Quite possibly if government bans on petrol and diesel vehicles are enforced and car buyers are left with no choice other than a battery-powered EV.