The graphite market did not take off as much as analysts and companies expected this time last year. But there is still hope for the critical metal in 2017, specially in the value added sector, as some predict that prices could slightly rise in the next few months.
The Investing News Network reached out to a number of companies in the graphite sector to get their thoughts on 2016 and on what to expect from next year’s graphite’s outlook. CEO of Northern Graphite (TSXV:NGC) Greg Bowes, Craig Scherba CEO of Energizer Resources (TSX:EGZ), Blair Way, CEO of Leading Edge Materials (TSXV:LEM) and Chester Burt, Director of Focus Graphite (TSXV:FMS), were able to provide some insight.
A disappointing 2016
Optimism about the graphite market has been rising for the past two years. The development of new technology and in particular, lithium-ion batteries, were expected to rise demand and impact prices. But the critical metal’s prices remained low during the past twelve months.
Scherba said he had expected prices to be rebounding slightly throughout this year, but that only happened until the last quarter of 2016.
“We’re a little bit disappointed I guess along with everybody else. We had expected a lot earlier recovery than what we’ve seen,” he said.
Similarly, Bowes said: “I had hoped that growing demand from lithium ion batteries would have lead to higher graphite prices in 2016.”
When speaking about the past twelve months, Way was more optimistic and added: “It was a tough year 2015 so I was optimistic we would see things in the sector trending the right way and we saw a steady increase in the sector with a few expected wobbles along the way.”
The biggest impact on graphite this year was price, that has also stopped other producers entering the market.
Bowes explained that low commodity prices are the biggest barrier to building new graphite mines.
“They are low because the steel industry is still depressed and that remains the biggest user of graphite.”
For Scherba, the biggest concern comes from the top producing country: “The Chinese are the ones producing the vast majority of the graphite out there and other people cannot compete with them because the prices are so low right now.”
But Way said that the sector has liven up a bit instead of the survival mode that was seen in the previous two years.
“The fact that people are more positive means we can get back to more meaningful work, raise capital again and keep the business plans moving forward.”
Is a rebound in prices possible?
The CEO of Energizer Resources said that he predicts a bounce back in the resource sector as a whole.
“The election cycle that just concluded in the United States is drastically changing the landscape in the resource market.
“We’ve already seen a rebound in gold prices, but there’s going to be a number of other commodities that are going to follow suit as well.”
For the graphite market, Scherba explained that how the price of the critical metal performs will depend on the flake size distribution, the purity and also the value of the added material.
“The refracting market is probably going to remain flat” adding that he thinks “the graphite prices for the value added portions are going to be increasing, so it will be expandable graphite,
“Apparently that is the hottest market right now, so you’re seeing the largest appreciation there.”
For the CEO of Northern Graphite the lithium-ion batteries, that are growing at over 20 percent per year, will be a key factor in prices in 2017.
“[The sector] already accounts for one third of flake graphite demand and the potential for higher prices in 2017 is very good.
“Also, there are serious questions about the ability of the Chinese graphite industry to increase production to meet this rising demand. So a very interesting supply/demand dynamic is developing which should lead to higher prices.”
The director of Focus Graphite shares a similar optimism as he expects markets will take direction from policy initiatives and technological advancement.
“We’ve said for a while now the tipping point is coming and we’re seeing it as we travel the world.”
For Leading Edge Material’s Director the graphite market will see more of the same in the upcoming year-a steady growth in interest in the sector.
Companies to watch out:
Apart from his own company, Scherba said investors should look at the more technically sound companies.
“Any type of near term production goals that companies have, if they have a plan moving forward, those are the ones people should be looking at,” he said.
Burt added that investors should watch other companies in the 2GL platform such as Grafoid, Stria Lithium (TSXV:SRA) and Braille Battery.
“It’s the world’s first critical materials platform bringing graphite, graphene and lithium together to make next generation energy applications.”
Benchmark Mineral Intelligence analyst Andrew Miller told INN that there are a number of companies across Canada and Australia that investors should be watching in 2017 such as Australian Syrah Resources (ASX:SYR), with their Mozambique Balama Project, and Bass Metals’(ASX:BSM) Graphmada project in Madagascar.
Another project to keep an eye on is the joint venture between Imerys Graphite & Carbon and Gecko Namibia to develop the Okanjande project.
Investors Takeaway: Be Patient
Burt said that investors should stop looking at stock price as in today’s market it does not reflect the technological changes underway.
“The reasons you invested yesterday are still there today and that much closer to happening. Be patient, let things unfold.”
Scherba added that research and reading is essential for investors as well as finding different sources.
“Don’t rely on one individual telling you how the world works because the graphite market is very opaque,” he said.
Way added that there is a great deal of misinformation out there that is very easy to accept at face value.
“Do your homework, interrogate all new stories and check facts.”
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Energizer Resources, Focus Graphite and Leading Edge Materials are clients of the Investing News Network. This article is not paid-for content.
The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.