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Producers of crude steel, stainless steel and ferroalloys have all introduced electrode surcharges to pass on some of the rising costs to their customers. Outokumpu reported in its interim report for Q1 2018 that high graphite electrode costs were still having a negative impact on steelmaking profits in Europe. Consumers have been reluctant to pay the rapidly rising costs and drew down on graphite electrode stockpiles for as long as they could. The tight supply/demand situation for graphite electrodes is expected to persist for much longer than many market observers expect.
Price rises are the result of a perfect storm of conditions in China. Firstly, environmental plant closures in the raw material coal needle coke industry hampered the production of graphite electrodes. At the same time, consumption of graphite electrodes in electric arc furnaces (EAFs) began to rise as the Chinese government took steps to halt production of poor quality induction furnace steel. Scrap steel was banned from sale to such furnaces in early 2017, becoming available for use in EAFs. Meanwhile, needle coke is being increasingly diverted into the battery market.
Batteries underpin growth in natural graphite
Synthetic graphite accounts for more than 60% of the world's graphite consumption, with natural graphite accounting for the remainder. Both synthetic and natural graphite compete for use in lithium-ion battery anodes, along with an increasing amount of needle coke and other existing carbon materials. Natural graphite often provides a low cost option, despite the extensive processing needed to transform mined product into the high carbon, low impurity, technical grades required for lithium-ion batteries. Natural flake graphite has to first be purified with high temperatures and strong acids and sphericalised into the intermediate product spherical graphite for use as an anode material - a process which is currently carried out only in China.
Demand for graphite in battery applications is forecast to grow by 5-8%py over the decade between 2017 and 2027, depending on the uptake of electric vehicles (EVs) and energy storage - the largest end-use applications for lithium-ion batteries. Roskill forecasts that global sales of EVs and hybrid vehicles will increase rapidly in the coming years and could account for 69% of all motor vehicle sales by 2027.
Rising flake graphite prices spur new development outside of China
The growing demand for spherical graphite has injected life into natural graphite supply chain development in the rest-of-world (ROW). Projects that had been quiet for a number of years during a time of price stagnation have begun to raise capital and progress projects supported by rising flake graphite prices through late 2017 and early 2018. By February 2018, flake graphite prices had increased by up to 50% since September 2017, and around 20 projects outside of China have now been developed to feasibility study or beyond. The focus for developers is now to produce the highest ratio of fine to medium-size flake, most-suited for spherical graphite.
Developers can supply their larger flake sizes to refractories, which remain the largest market for flake graphite by tonnage, but one which is growing slowly thanks to China's weak crude steel growth rate. Extra-large 'jumbo' flake sizes are increasingly sought after for use in the smaller, but rapidly growing, market of expandable/expanded graphite, used in flexible graphite products and fire-retardant materials.