Industrial Minerals: China Graphite Consolidation
China may consolidate flake graphite industry within five years
16 April 2013 by Laura Syrett
Successful amorphous consolidation in Hunan could pave the way for flake control China's flake graphite industry could be consolidated within the next five years, IM has learned.
The country’s amorphous graphite sector has already seen the incorporation of small private producers into larger mining firms, and this could provide a model for flake production, according to Hu Zijiang, president of South Graphite Co. Ltd.
Consolidation of the flake graphite industry would form part of the national government’s policy to reshape China’s resource sector by stripping out marginal companies in favour of more efficient, large-scale miners.
South Graphite was formed in 2011 as a consolidation venture in Hunan province, and is the world’s largest amorphous graphite producer, with a capacity of around 200,000 tonnes.
This figure rises to 500,000 tonnes including production supplied from a consortium of private companies in the region, representing around 40% of China’s amorphous graphite market.
Change ahead: flake graphite concentrate waiting to be dried at Qingdao Black Dragon Graphite's plant in Shandong.
The company is 50% owned by the Chinese government- run China National Building Material Group (CNBM), a huge conglomerate of 560 enterprises, with the remaining 50% owned by other investors, including previous mine owners.
Apart from amorphous graphite, this consolidated model has already been applied to Chinese rare earths and phosphate mining, which both saw mine closures and buy-outs of small companies in 2012.
“I expect that this will happen to flake graphite at some point,” Hu confirmed.
Changes to supply
If it goes ahead, the move could see a temporary reduction in flake graphite production as mines will have to shut down while the process of consolidation is completed, Hu said.
There is unlikely to be an overall reduction of volumes in the long-run, although there will be more emphasis on producing high value products rather than raw materials, he added.
Early indications that industry restructuring was on the cards were observed in February when one of China’s leading graphite miners, Rising New Energy Co., was granted exclusive graphite mining rights in Inner Mongolia.
All five rights mining rights in Xinghe County, the province’s graphite mining hotspot, were given to the company that was founded by the government in 2010 to combine the province’s nine flake miners.
It is thought that Heilongjiang, China’s richest graphite-producing province, will be the next target for consolidation, sincereserves in Shandong, the country’s oldest major flake region, are dwindling.
While consolidation is expected to take some time, a near-term development could be the banning of flake mining operations less than 10,000 tpa in Shandong.
China’s government will also look to target its largest and most modern graphite companies as takeover vehicles to lead the consolidation process.
The technology gap
This view was echoed by Che Jian-Ting, president of Qingdao Black Dragon Graphite Co., who told IM that pursuing better technology and greater resource efficiency were among the chief priorities for Black Dragon as a route to increased profits.
Black Dragon owns one of China’s largest flake graphite mines and is one of the top producers of flexible graphite sheets for manufacturers in the consumer electronics industry including Apple, Sony and LG.
It also makes spherical graphite for the battery market, with many of its products destined for manufacturing plants in Japan.
The company extracts flake graphite from open pit mines in Shandong and neighbouring Heilongjiang province, and has a production capacity of around 80,000 tpa.
Speaking at company headquarters in Shandong Province, northeast China, Che said that graphite mining alone was a low- profit business in China.
"We make our margins mainly from processing graphite and value-added products," he said.
"Owning a mine is a good base from which to control raw material supply if demand changes, but simply mining graphite and selling it as ore does not make a lot of money as a business on its own," Che added.
Che cited rising costs associated with increasingly-stringent government regulation of chemicals used in graphite beneficiation and the requirement to treat waste water to environmentally safe levels as one of the major challenges facing the company.
Another pressure, Che said, was the decline in the quality of the ore from Black Dragon’s Shandong mines, which in turn increases the cost and complexity of separating the graphite from impurities.
Like other producers in Shandong, Black Dragon is increasingly turning to Heilongjiang to fill the flake graphite supply gap, but this alone is not enough to keep margins up, according to Che.
"Recycling waste and maximising our efficiency, as well as further development of our processing capabilities are the keys to combating the increasing costs of mining and environmental management," he said.
Internal competition will not benefit industry Che told IM that fierce competition in the Chinese graphite industry is acting as a brake on the sector's progress towards
technological maturity.
He hinted that he supported a shift towards consolidation in the flake graphite market, as this would help to reduce domestic competition and ultimately lead to greater profitability for all producers.
“We are looking to better technology and efficiency to increase our margins, rather than enlarging our market share through price competition,” Che said.
One of the aims of the policy is to modernise China’s graphite industry, which suffers from a shortage of investment, up-to- date technology and expertise, Hu said.
South Graphite’s Hu seconded this perspective, saying that co-operation was needed for the industry to grow.
“We need to make the cake bigger, rather than get a larger share of the current cake,” Hu said.
He repeated that the key factor in achieving this objective was expanding the industrial supply chain so that China could develop more processed graphite products domestically.
Industrial markets remain vital
Notwithstanding Black Dragon’s supply presence in downstream electronics and battery industries, Che said that company's most important market is still the Chinese industrial market, with refractories consuming the majority (over 60%) of its -100 mesh, 95% C graphite material.
Hu acknowledged that the pace of growth in new technologies such as electric vehicle batteries and graphene were a driving force behind increasing graphite demand, but said that, in volume terms, the amount of graphite consumed by these industries was still very small.
As a producer of amorphous graphite, South Graphite’s products are mainly used as carbon raisers and lubricants in industrial applications.
Hu said, however, that the company hoped to develop technology that could upgrade low value material into products that would be suitable for other markets, such as refractories.
“As a government-invested company, we have few restrictions on the investment side,” Hu said. “Our aim is to share in future developments in the graphite industry, and we are both ready to invest and open up to partnership with other companies in China, and beyond,” he said.