CEOs and company executives share their thoughts on graphite market trends in 2019 and the graphite forecast for 2020.
While 2019 was a tough year for all battery metals, expectations that the electric vehicle (EV) boom will drive demand are still increasing.
Graphite is an essential element in the lithium-ion batteries used to power EVs, and many predict that will continue to be the case in the next few years.
But what will happen to graphite next year? To find out, the Investing News Network reached out to a number of companies in the space to get their thoughts on what’s ahead for graphite in 2020.
Greg Bowes, CEO and director of Northern Graphite (TSXV:NGC,OTCQB:NGPHF); Anthony Huston, CEO of Graphite One (TSXV:GPH,OTCQB:GPHOF); Mark Saxon, CEO and president of Leading Edge Materials (TSXV:LEM,OTCQB:LEMIF); and Jamie Deith, CEO of Eagle Graphite (TSXV:EGA), were all able to provide insight. Read on to learn their thoughts on the graphite forecast moving ahead.
Graphite trends 2019: The year in review
When asked about what Leading Edge Materials expected from 2019 going into the year, Saxon said that the hope was for more optimistic market conditions.
“While the TSXV remains weak, the year has certainly delivered a lot of very positive progress in Europe for the EV and battery markets,” he said.
Meanwhile, Northern Graphite’s Bowes did not hope for very much from the market in 2019, expecting prices and investor interest to remain low.
“There is excess production capacity in China and a large new mine in Africa, which created an oversupply of the ‘small flake’ used in the battery/EV industries,” he said. “These markets are going to be huge, but in the shorter term demand has been growing more slowly than most predicted.”
In 2019, the ramp up of Syrah Resources’ (ASX:SYR,OTC Pink:SYAAF) Balama project in Mozambique and its subsequent slowdown in production were key catalysts for the sector. Balama, which is the largest natural graphite operation outside of China, produced over 100,000 metric tons in 2018.
The slash in output was a direct response to a sudden and material decrease in Chinese spot graphite prices, a decrease that has been impacting price negotiations and contract renewals, Syrah Resources Managing Director and CEO Shaun Verner said at the time.
Eagle Graphite’s Deith explained that the ASX-listed company flooded the market in 2019 with its graphite output and sold it for less than it costs to produce it.
“Ultimately Syrah’s huge cash burn and diminishing share price forced a great reckoning, and late last year they had little choice but to cut production dramatically,” he said.
As a result, graphite supply and demand dynamics suffered and prices felt downward pressure.
“While future graphite demand driven by lithium-ion batteries, fire-retardant expandable graphite and heat-dispersion materials is strong, the current market proved not to be deep enough to absorb a new large-volume producer,” Leading Edge Materials’ Saxon said. “The new production created downward price pressure and uncertainty from investors about the timing of future demand growth.”
Speaking about other challenges for the space in 2019, Graphite One’s Huston said financing and a misunderstanding of the sector continued to be key issues.
“We all use lithium-ion batteries, but we don’t make the connection that advanced graphite is an essential material,” he said.
Graphite outlook 2020: Price improvement expected
Looking ahead, Northern Graphite’s Bowes thinks there could be some improvement in prices as Syrah’s new mine in Africa has essentially shut down.
“But this will be moderated by the Chinese supply situation and slower-than-expected EV growth.”
Similarly, Eagle Graphite’s Deith expects to see an improved graphite market on the back of Syrah’s shutdown decision, although it will take time for accumulated inventories of cheap graphite to be whittled down.
“In the meantime, batteries for EVs are projected to drive demand ever upward for many years into the future,” he said. “If steel production picks back up in 2020 it will be icing on the cake.”
Leading Edge Materials’ Saxon also anticipates gradual improvement for 2020, with both growing volumes and a shift to higher-value materials.
“The supply side has now stabilized, with no new producers funded for production, while battery demand is ramping up, particularly in Europe and Asia,” he said. “Battery and automotive customers are demonstrating the clear expectation of local, transparent and sustainably sourced materials, which will provide opportunities for European and North American graphite manufacturers.”
Graphite One’s Huston is also expecting a better market as the world’s car manufacturers begin moving towards realizing their goals of EV domination by 2025 and 2030.
“Because of the EV revolution — and energy storage system applications more generally — graphite demand is rising rapidly,” he said. “According to the World Bank, graphite demand between now and 2050 is projected to increase by 383 percent.”
The amount of new graphite supply that is needed even if EVs only become moderately successful is quite significant, and, as most comes from China, Bowes also believes there is an opportunity for new western sources of supply.
“Demand will eventually catch up to supply as automakers are going to flood the market with new hybrid/EV models,” Bowes said. “However, there is an immediate opportunity for new ‘large-flake’ production for industrial markets. Prices are higher and supply/demand more balanced.”
He added that these companies can then switch to the EV market if the supply/demand situation changes and margins improve.
“So investors should focus on companies that produce a high percentage of ‘large flake,’ have realistic production levels relative to the size of the market, reasonable capital costs, are close to infrastructure and are located in politically stable countries.”
When looking at junior miners, Bowes said that there are a number of graphite projects that have completed feasibility studies and are awaiting financing.
“The biggest potential catalyst for all of us is higher prices, which may or may not happen in 2020,” he said. “A game changer would be a big battery or auto maker finally entering into a real offtake agreement with a graphite company.”
Northern Graphite is currently developing its Bissett Creek project in Canada, which already has a full feasibility study and its major environmental permit.
For Leading Edge Materials’ Saxon, the graphite and battery materials markets are providing many opportunities for investors after a number of challenging years. His company is currently developing the Woxna graphite project in Sweden, but also has interests in lithium and rare earths assets.
“The shift to electrification of transport now appears assured, and this cannot happen without very large growth (up to 10 times in 10 years) in the supply of battery materials,” he explained. “For companies with well-located projects with access to the skills and energy needed for value add, there is a very good chance of success.”
Meanwhile, Graphite One’s Huston said that if investors want to understand the graphite space, they need to start by understanding the EV market.
He added that the US, where Graphite One’s project is located, currently imports 100 percent of its graphite from China.
“If the US wants to encourage a robust technology manufacturing sector — if we want to be tech makers and not just tech takers from other countries — we’re going to need a secure supply of graphite and other critical minerals.”
When asked about his best suggestion for investors new to the space, Eagle Graphite’s Deith said there are fabulous opportunities in graphite, but investors have to do their homework and be selective.
“The lesson from Syrah is that the most-hyped graphite projects are often those that have minimal chances of long-term success,” he said. “Don’t be fooled into thinking that a high market cap indicates a good graphite project.”
Eagle Graphite owns one of only two natural flake graphite production facilities in North America. Its project, known as the Black Crystal graphite quarry, is located in Washington in the US.
Want to learn more about what’s in store for graphite? Click here to read what analysts think is in store for the graphite outlook.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Leading Edge Materials is a client 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.