Banca I.F.I.S Spa BNCIF

Graphite prices listed higher....Simon Moores, IM website

[GUNSS]

List prices increase significantly despite slack demand; fears that Heilongjiang flake graphite action could spread to cleaner areas

Suspensions in flake graphite mining in China’s major producing regions is causing some producers to increase list prices on the back of an expected supply squeeze.

Major government-forced shut downs in Shandong province, and impending closures in Heilongjiang, over unacceptable air and water pollution levels have led some producers to hold back from the market due to expectations of an impending supply squeeze. As a result these suppliers have increased prices by up to $240/tonne.

A major producer in China explained to IM Data that its prices, across-the-board, have been increased by between RMB 1,000/tonne ($160*) and RMB 1,500/tonne ($240) as a direct result of the potential closures.

Considering flake graphite prices in China – for 94-97% C, -100 mesh – can vary from $650-750/tonne, this could represent increases of up to 30%.

The move appears to be geared for an upturn in demand as the Chinese buying season begins.

Nevertheless, today’s demand is still very weak across all major global markets. This is the first time the industry has seen such a significant demand slump from all markets and all regions of the world at the same time.

The prices quoted to us are yet to be submitted to IM Data’s price database, as they are not reflective of the wider market. Should even a small amount of demand activity return, however, there is a high risk of panic buying – a major contributing factor to the price spike seen in 2011.

There is also a secondary risk that demand from refractories could return to significant levels at the same time as increased consumption from the battery sector. As both end-markets compete for the same raw material – medium flake graphite, 94% C (-194) – this could add further upward price pressure.

Heilongjiang pressures: spread to Luobei?

Imminent flake graphite closures in the world’s leading producing region, Heilongjiang, have now gained global attention from the story that was broken by IM Data and later picked up by China’s national, English speaking news channel, CCTV.

There are now fears in China that the government’s focus on the worst offending area, Jixi, could spread to the cleaner producing area of the province, Luobei.

Jixi and Luobei together accounted for 45% of China’s 220,000 tpa flake output in 2013.

A recent rumour, which has contributed to these fears, is that China is sending central government representatives to the region to monitor the situation. Any action from the central government – as opposed to the provincial government which tends to be more forgiving – could escalate the situation.

While sources close to IM Data have corroborated this news, there are yet to be confirmed reports of any meetings with high level representatives.

The developments have forced buyers to look towards smaller, peripheral graphite producers away from two of China’s major graphite hubs, Heilongjiang and Shandong. This has led to a rise in enquiries within the smaller producing provinces of Hubei, Hebei, and Hunan.

*Conversions made as of May 2014