When I think of graphite, my mind instantly goes to the mechanical pencils that were all the rage back in grade school.
These days, however, graphite plays a much more important role. Besides filling nifty pencils, graphite is most commonly used in steel manufacturing, auto part fabrication, lubricants, and lithium-ion batteries.
Its application in lithium-ion batteries is often underrated and overlooked. Even Tesla (NASDAQ: TSLA) CEO, Elon Musk, the largest user of lithium-ion batteries for its electronic cars, claimed that they should be called nickel-graphite batteries: "Our cells should be called Nickel-Graphite, because primarily the cathode is nickel and the anode side is graphite with silicon oxide... [There’s] a little bit of lithium in there, but it’s like the salt on the salad."
In the past, graphite has not experienced the price spikes that lithium is going through primarily because its price is driven by the materials’ consumption in steel — a globally depressed market.
As a result, graphite’s supply situation has fallen under the radar. But this looks like it’s about to change...
At present, Tesla uses cells made by Panasonic (OTC: PCRFY), which uses both synthetic graphite and natural spherical graphite for anode material, sourced from China.
However, for its gigafactory, Tesla has to source all raw materials on its own. And in an attempt to drive down costs and improve battery performance, Tesla favors the natural spherical graphite product due to its lower cost profile and lower carbon footprint for manufacturing.
In many ways, Musk was correct. Graphite’s importance to the cost of a lithium-ion battery should not be underestimated.
If you consider that there is more graphite in a lithium-ion battery than lithium, the cost of graphite to a battery could be as, if not more, significant than lithium.
It just hasn't been considered until recently because the price of flake graphite feedstock is low and there is a synthetic substitute.
But considering the preference toward natural spherical graphite, and that demand is outpacing new supply, it is a subject that could soon rise to the surface. And in many ways, this is thanks to Tesla and Musk for putting it on our radar.
New Market Outlook
According to a report by Research and Markets, the global market reached $12.5 billion back in 2016 and is poised to reach at least $18.2 billion in 2021, if not more.
The key factors that are driving the graphite market include rapid growth in the mining industry, advancements in automotive and electronic technologies, growth in demand for batteries, and a decrease in lithium-ion battery costs.
The use of graphite in batteries, especially, has been increasing in the last 30 years because it's a major component in battery anodes in lithium-ion cells.
The lithium-ion battery market is directly tied to the growing demand for electric vehicles (EVs). According to a report by Reuters, Consultants at CRU Group believe that electric cars and plug-in hybrid vehicle sales could increase to 4.4 million in 2021 and reach more than 6 million in 2025.
Moreover, graphite finds a wide range of applications within the automotive industry besides lithium-ion batteries. They can be found in clutch materials, exhaust systems, cylinder heads, gaskets, and motors.
Also, a growing preference for graphite over asbestos for manufacturing low noise braking and ultra-lightweight carbon-fiber-reinforced plastic (CFRP) is expected to aid in supporting the overall graphite market growth in the coming years.
In addition, the consumer electronics market is expected to witness rapid growth in the coming years due to the strong demand for smartphones and other portable electronics in the Asia-Pacific region and other developing countries.
All of this combined will have a direct impact on the growth of the graphite market.
Mining and Production
Lithium-ion batteries need a lot of graphite compared to lithium, anywhere between 10 to 30 times as much.
And there is no cheaper alternative available, which highlights the growing importance of the graphite industry, especially in battery production.
Only high crystal purity graphite is used in lithium-ion batteries, and there is a very limited supply of this type.
Unlike the lithium market, which is dominated by Albemarle (NYSE: ALB) and Sociedad Qumica y Minera de Chile (NYSE: SQM), graphite has only one producer in all of North America, Imerys (OTC: IMYSF).
While lithium continues to dominate the headlines, graphite prices are just now on the rise, largely due to the result of similar forces that have been driving up lithium prices: mine closures taking capacity from the market and concerns about future supply shortfalls.
Aiming to capitalize on the opportunity, Lomiko Metals (OTC: LMRMF) is developing its La Loutre Flake Graphite Project in Quebec.
The company intends to become a leading producer of not only high purity graphite but also graphene and graphene products. Being the world's first 2-D material, it has been dubbed the "miracle material" by Goldman Sachs because of its uncanny properties of strength, flexibility, electrical conductivity, durability, and ridiculous thinness (1 million times thinner than a strand of human hair).
To date, Lomiko's results have been extremely promising.
The Bottom Line
The EV and energy storage markets are undergoing huge shifts that are reorienting the graphite industry, particularly the natural graphite market.
The electrical conductivity properties are ushering in a large new market for graphite in the field of energy storage applications.
Green energies, such as wind and solar markets, are stoking big demand for energy storage requirements, in terms of batteries, as well — not just for electric cars.
Poised to take over lithium’s popularity and demand, graphite’s prices are just now heating up.
That’s all for now.
Until next time,
John Peterson |