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 mined resource sector in recent years, largely due to its important role in electric vehicle (EV) battery chemistry.
Concerns about Chinese supply and anticipated demand from lithium-ion battery megafactories has sparked a huge amount of interest in the mineral from investors.
Today, each EV battery contains between 40 and 60 kilograms of graphite material, according to Benchmark Mineral Intelligence, a well-known market data firm. Painting a positive picture of the long-term outlook for graphite, many battery market analysts believe the mineral will remain a dominant material in EV batteries for at least the next decade.
To help those who are considering investing in graphite gain a better understanding of the space, here is 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.
Graphite investing: 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 is also valued for its self-lubricating and dry-lubricating properties. There is more than one type of graphite, with the three main kinds being flake, amorphous and vein. 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 (NASDAQ:TSLA) CEO Elon Musk announced that his company would be building a lithium-ion battery gigafactory.
Graphite is used in lithium-ion battery anodes, and the news from the major EV maker immediately sparked predictions of how much of the mineral the gigafactory might require. Lithium-ion batteries are used to power EVs and for energy storage.
Aside from lithium-ion 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.
Graphite investing: Supply and demand
As mentioned, flake graphite is currently gaining a lot of 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 exactly 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 Mineral Intelligence 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 supply, the majority comes from China. The Asian nation produced 650,000 metric tons of graphite in 2020, nearly double 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.
Back in 2013, the Chinese government began making an effort to streamline graphite production in the country, with part of the process being to take polluting producers back online. However, weak graphite market conditions have hampered that process.
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.
Graphite investing: Prices
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 alike, 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.
Graphite investing: How to invest
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 investing in 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 and market caps above C$10 million. Click here to see the list.
This is an updated version of an article originally published by the Investing News Network in 2015.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.