Refractory grade graphite: Seeking Chinese supply diversification

$Page 1: Refractory grade graphite: Seeking Chinese supply diversification$
Refractory-grade graphite in 2013

Simon Moores, UNITECR 2013, Victoria, Canada

Simon Moores, Manager, Industrial Minerals Data – Connect [email protected]

www.indmin.com/GraphiteAnalysis

mailto:[email protected]

http://www.linkedin.com/profile/view?id=61241910&trk=nav_responsive_tab_profile


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1. The situation

2. Production

3. China

4. Exploration boom

5. Prices

6. The future








1. The situation

• The world has become over-reliant on good quality, low cost flake graphite from China

• Some major refractory producers are seeking supply diversification, reduce dependence on China

• No new mines outside China since the 1980s

• New raw material competition on horizon

• Steady supply from China being threatened

• Long term, stable prices have not existed for 5 years







Where is natural flake graphite mined?







Where is natural flake graphite consumed?

2012

Refractories, foundries andcrucibles - 39%

Batteries - 9%

Metallurgy - 28%

Lubricants - 9%

Part & components - 10%

Other - 5%







#1 China

Shandong, China

• Dominates all forms of natural graphite production• Flake, amorphous and spherical • 61% of world’s flake graphite in 2012 • 89% of world’s amorphous graphite in 2012

• Main producing regions for flake• Heilongjiang• Shandong• Inner Mongolia

• Total flake output in 2012: 450-480,000 tpa

• No active restrictions on graphite supply

• Graphite listed as a strategic mineral in China, consolidation under discussion







#1 China

Shandong, China

China’s graphite production rise:

China’s % of global graphite output

1973 - 15%

1983 - 33%

1993 - 50%

2003 - 84%

2013 - 78%







#2 Brazil

• 23% of world’s flake graphite output

• Nacional de Grafite (right) – world’s largest non-Chinese producer by far

• Supplier of large and medium flake

• Has been operating at capacity for the last 3 years

• Expensive for Brazilian producers to export,domestic focus (25:75)

• 1 new graphite mine project

Minas Gerais, Brazil







#2 Brazil

• Offers the most immediate potential for supply increase

• 2 operating flake producers = total capacity 102,000 tpa

• 1 mothballed flake graphite mine

• Strong domestic market and export potential to North America which relies on China and to a lesser extent Canada and Europe

• 75% of production is domestically consumed at present







#3 India


• Production hugely over estimated for years – 140,000 tpa, in reality 25-30,000 tpa

• Industry very fragmented

• No mines larger than 7,000 tpa

• Questions over how much flake is mined in India versus how much imported from China and reprocessed

Jarkhand, India







#3 India

• Consolidation needed to be a major global graphite exporter

• No exports – strong internal demand

• Imports from China

• Poor infrastructure major barrier to development







#4 Canada


• 2 operating mines, 1 major mine in Quebec = Lac des Illes

• 15,000 tpa, predominately medium flake graphite

• Moved to a new mining pit = production good until 2015

• Consistent producer to global market for 20+ years

• Supplies North America and Europe







#4 Canada

• Mining suspended in 2013

• Slow market conditions, operating from inventory

• Large flake graphite questions

Exploration

• Post-boom era

• Serious graphite exploration companies now coming to the fore

• Canada home to some major global projects

• Companies present: Syrah Resources (booth), Flinders Resources







#5 Norway

• 2% of flake graphite output

• Underground mine in Skaland, north Norway

• Europe’s only miner

• No significant expansions are expected in the medium term

Skaland, Norway






Resource management

• Environmental reasons commonly given

• But…China no longer wants to be the bread basket for the rest of the world

• Exports of raw materials at the expense of resources/environment no longer a viable long term business

• The rare earths excuse

The China factor: production and policy

Macro changes in China:

Pollution controls

• Blanket ban on all round/downdraft kilns, Shanxi • Heavily polluting, inefficient• Had to covert rotary kilns or go bust • 75% of producers wiped out overnight • Prices up 70%

2007 – Refractory-grade bauxite

2009 – Flake Graphite, Inner Mongolia

2011 – Amorphous Graphite, Hunan

• Mine closures of older operations • Pollution and demand grounds

• Government-forced consolidation in Lutang

• Coal and amorphous graphite industries• 220 mines to 30 on pollution and

resource protection grounds

2012 – Flake Graphite, Jixi, Heilongjiang

Developing a value-added economy

• Exports of raw materials at the expense of resources/environment no longer viable

• Development of the production value-chain is critical

The 7 key industries China wants to develop 1. New energy2. New energy automotive3. New materials4. Energy saving and environmental protection5. Biological science6. New information industry7. High-end equipment manufacturing

2. Macro changes to mining in China

High quality, lower cost manufacturing

Consolidation – majority of production by the fewest companies

China wants to compete on quality and quantity

Output of top ten steel producers - % of total capacity


The China factor: production and policy

Graphite compared to other raw materialsThe Kooroshy Commodity Chart

Source: Resources Futures, Chatham House, London






Exports to imports for raw materials

• 2000 average import dependency: 15% • 2011 average import dependency: 40%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Bauxite Copper Iron ore Cokingcoal

Average

2000

2011

China’s dependency on imported raw materials

Note: China is a net exporter of natural graphite

The medium term future for China

• In need of modernisation

• Increased focus on more efficient graphite mining

• Consolidation in flake will happen = when?

• High potential for export supply restrictions in favour ofvalue-added products

• Net exporter of graphite for foreseeable future

• China is industry leading with commercial spherical graphite

• China will compete in other advanced battery materials


Exploration boom







Exploration boom

2010: 5 exploration companies2011: 60 exploration companies2012: 125 listed graphite exploration companies*

*Tech Metals Research

Graphite Production & Exploration Map: Free at UNITECR 2013







Prices

Volatility in commodity markets

Source: Resources Futures, Chatham House, London







Prices







Prices 2009-2013 – the era of volatility

2009

2010

2011

2012

2013

• Producers take capacity off-line in response to global economic crisis• Destocking cycle ensues

• Markets rebound stronger than anticipated • Suppliers cannot react quick enough, not enough inventory to satisfy

demand• Supply shortage• Price spike

• Flake graphite price reaches all time highs• +80 mesh, 94-97% C, CIF, Europe = $2,500/tonne • Situation + graphite’s green energy uses + no viable substitutes = boom

in new exploration

• H2 2012: Demand begins to slow

• H1 2013: Prices plummet as demand stagnates • China significantly struggles for the first time







Price performance in 2013

Price trend in 2013:

2011: all time highs

Large flake +80 mesh, 94-97% C, flake graphite, CIF, Europe

• 2000-2009 av: : $823/tonne• September 2013: $1,350/tonne

Source: Industrial Minerals Data: Graphite price database - new

Indmin.com/GraphitePrices






http://www.indmin.com/graphiteprices


Price performance in 2013

Medium flake-100 mesh, 94-97% C, CIF, Europe

• 2000-2009 av: $650/tonne

• September 2013: $1,050/tonne

Source: Industrial Minerals Data: Graphite price database - new

Indmin.com/GraphitePrices






http://www.indmin.com/graphiteprices


What does the future hold?

• China has the ability, production power, resources to continue supplying the world like is has done so since 1980s

• Customer perspective is changing, however

• Supply security is high on the agenda = from the unknown of Chinese policy (the rare earths situation)

• Wide agreement graphite has been neglected for a generation = major interest in exploration scene

• Price volatility seen over last 5 years will continue as a result of changing buying patterns, not necessarily through a demand squeeze








My 5-year expectations in 5 points:

1. China to remain #1, supply restrictions to increase o Active: export quotas (magnesia, fluorspar, rare earths), tax increases =

less likely o Passive: Environmental crackdown (wasteful mines, polluting plants,

uses of certain acids), consolidation = more likely

2. Supply to increase outside of Chinao Expansions at existing mines: Brazil, Canada o New mines: Africa, Canada

3. Supply chain integrationo Refractory producers especially, buy far largest volume consumers of

flakeo Users to buy or have a stake in mines o A return to pre-1985 mentality








4. Large flake graphite production increaseo > 80 mesh, 94% Co Through new mines outside of China = opportunity o The emergence of a new category = Jumbo flake, > 48 mesh

5. Raw material competition o Large flake graphite competition from batterieso > 80 mesh and larger most suitable for spherical graphite o New market which didn’t exist pre-2008

My 5-year expectations in 5 points:







Mike O’Driscoll,

Head of ResearchIndustrial Minerals Research

Email: [email protected]

Emma Hughes

Deputy EditorIndustrial Minerals


Ben AshAdvertising & SponsorshipIndustrial Minerals











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Natural Graphite Report 2012-2016Supply, demand, price forecast

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Refractory grade graphite: Seeking Chinese supply diversification

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