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How to Invest in Graphite
What exactly is graphite? And can investors really profit from graphite investing? Here are some brief answers to those questions and more.
Graphite has risen in the ranks of the resource sector in recent years, largely due to its key role in electric vehicle (EV) batteries. Concerns about Chinese supply and anticipated demand from lithium-ion battery megafactories have sparked investor interest, and experts believe graphite will remain a dominant EV battery material for at least the next decade.
Today, each EV battery contains between 40 and 60 kilograms of graphite material. Putting the market's anticipated growth into perspective, Benchmark Mineral Intelligence data shows that demand for natural graphite from the battery segment amounted to 400,000 metric tons (MT) in 2021, with that number expected to scale up to 3 million MT by 2030. Meanwhile, demand for synthetic graphite came to about 300,000 MT in 2021, and is expected to increase to 1.5 million MT by 2030.
Benchmark analysts see a supply deficit coming by 2027 or 2028 if graphite companies do not expand their operations.
To help investors get a better understanding of the graphite space, here's a brief overview of what graphite is, what’s going on in the market today and what the future could bring for the mineral. Read on for insight on these topics and more.
What is graphite?
Graphite has a layered, planar structure, with carbon atoms arranged in a honeycomb lattice. It’s thermally stable and can conduct electricity, but it's also valued for its self-lubricating and dry-lubricating properties. Flake, amorphous and vein are the three main types of graphite; all are important for different industries, but flake graphite is currently getting the most buzz.
Flake graphite has become especially important since early 2014, when Tesla's (NASDAQ:TSLA) Elon Musk announced that his company would be building its first lithium-ion battery gigafactory in Nevada, US. Graphite is used in lithium-ion battery anodes, and the news from the major EV maker immediately sparked predictions about how much of the mineral the gigafactory might require. Lithium-ion batteries are used to power EVs and for energy storage.
Aside from batteries, flake graphite can be used in pebble-bed nuclear reactors, as well as in the refractory and steel industries, fuel cells and vanadium-redox batteries. Amorphous graphite is used in the refractory industry as well, and in mechanisms such as brake linings, gaskets and clutch materials. Vein graphite finds a home in advanced, thermal and high-friction applications.
Click here for more information on the types of graphite.
What factors impact graphite supply and demand?
As mentioned, flake graphite has seen attention as graphite market participants try to guess how much impact facilities like Tesla’s gigafactory — and other lithium-ion battery megafactories — will have on graphite demand.
While it’s tough to pinpoint how much graphite those megafactories will require (and when), it’s safe to say that they will need a lot. Some market watchers have provided estimates, and Benchmark is one firm that has written extensively about the topic.
For now, however, much of that demand has yet to materialize. Many companies that rushed into the graphite space previously have not yet secured offtake agreements for the material they plan to produce. As a result, some are stalled in the exploration and development phases; it will be difficult for them to move forward until end users start locking down supply.
In terms of graphite supply, the majority comes from China. The Asian nation produced 850,000 MT of graphite in 2022, significantly greater than that of the next five top graphite-producing countries combined. That said, in recent years there have been concerns about the security of Chinese graphite supply, as regulations to lower pollution have cut back on supply.
The upshot is that graphite demand appears set to rise substantially with no guarantees that producers will be able to keep up. Prices remain subdued, but may start to rise as buyers become more concerned about impending megafactory demand.
Click for more information on graphite supply and demand from the EV space.
How is graphite priced?
Speaking of prices, how much does graphite cost? Unfortunately, it can be difficult to get exact figures. That’s because, unlike gold, silver and other important commodities, graphite is not traded on an exchange. Instead, graphite miners will typically set up offtake agreements under which end users agree to buy a specific amount of graphite over a particular period of time.
That setup comes with a variety of issues for graphite companies and market participants, but for many investors the key concern is that they can feel like they’re operating blind. After all, it’s hard to get an idea of whether a company is putting out good results without having an idea of how much it will be able to sell its product for.
Luckily, some industry experts are looking to increase transparency in the graphite sector. Benchmark Mineral Intelligence is one firm that provides accurate and up-to-date information on graphite pricing.
Click here for more information on current graphite pricing.
How to invest in graphite?
While the graphite market is compelling, it can be tricky for investors to gain a toehold in the space.
As noted, graphite is not traded on an exchange, meaning that investors can’t get exposure to the physical material. What’s more, it isn’t easy to invest in graphite-mining companies — most of the largest graphite producers are in China, and in many cases are privately owned or only listed on Asian exchanges.
For that reason, many investors choose to invest in graphite exploration and development companies. While some have struggled to move forward for the reasons discussed above, there are still plenty that have good projects and are making progress. To help investors who are looking at graphite, the Investing News Network has put together a list of the top graphite companies on the TSXV and TSX with year-to-date gains, as well as biggest ASX graphite stocks.
This is an updated version of an article originally published by the Investing News Network in 2015.
Don’t forget to follow us @INN_Resource for real-time news updates!
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
Melissa Pistilli has been reporting on the markets and educating investors since 2006. She has covered a wide variety of industries in the investment space including mining, cannabis, tech and pharmaceuticals. She helps to educate investors about opportunities in a variety of growth markets. Melissa holds a bachelor's degree in English education as well as a master's degree in the teaching of writing, both from Humboldt State University, California.
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Melissa Pistilli has been reporting on the markets and educating investors since 2006. She has covered a wide variety of industries in the investment space including mining, cannabis, tech and pharmaceuticals. She helps to educate investors about opportunities in a variety of growth markets. Melissa holds a bachelor's degree in English education as well as a master's degree in the teaching of writing, both from Humboldt State University, California.
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