Is China’s Flake Graphite Industry Headed for Consolidation?

Graphite prices have undoubtedly declined from their “unprecedented” 2011 highs, but according to The Metals Report, Simon Moores of Industrial Minerals Data believes the “industry has seen the bottom of graphite prices and should expect a rise” to begin by the third quarter of 2013.

However, in China that picture is not so rosy. Moores notes in an article published yesterday that over the last six months, the price of flake graphite in the Asian nation has been “falling considerably” on the back of a lack of demand. As a result, “excess medium flake graphite (+/-100 mesh) in the market” has pushed prices down, “in some cases to sub-$700 levels.”

He believes that this situation is unsustainable and thinks that ultimately either demand must increase or the Chinese graphite industry must undergo consolidation, “market-led or otherwise.”

The main concern regarding the consolidation of China’s flake graphite market, The Metals Report states, is that it will lead to the country flooding the market with graphite like it did in the mid-1990s. However, Moores thinks that is unlikely because China “wants to compete with South Korea, Japan, Europe and the U.S.” and “[c]heap exports are not the way to do that.”

Though Moores emphasized that it isn’t clear yet whether consolidation will occur, he mentioned to The Metals Report that China’s amorphous graphite industry has already been consolidated, stating that 230 small mines in Hunan province have been transformed into a conglomerate that controls 50 to 60 percent of that area’s production.

Price update

Moores told The Metals Report that currently +80 mesh material ranging from 94- to 97-percent carbon — his firm’s most commonly quoted grade — is now selling for $1,400 per metric ton, about a 50-percent drop from the highs seen in 2011 and 2012.

While he did not give a firm prediction for future pricing, as noted above, Moores does believe that prices are on their way up. He also noted that “[f]lake graphite prices have settled higher than expected” and “remain 60% higher than pre-recession levels.”

Junior company news

Last Monday, Syrah Resources (ASX:SYR) announced that it has made “substantial” progress on fulfilling key infrastructure requirements at its Balama graphite project in Mozambique, noting that it is trying to fast track the project to development. In late May, the company revealed that the project “contains, by far, the largest known graphite resource in the world.”

Across the world, the Quebec graphite space has been gaining attention. On May 27, Rock Tech Lithium (TSXV:RCK) exercised its option to acquire a 100-percent interest in 32 mineral claims that make up the Quebec-based Lochaber graphite property. It is considered prospective for large-flake, crystalline graphite and contains some of the oldest graphite showings in Canada, according to the company’s website.

“The results of the exploration activities we have completed thus far have exceeded our initial expectations. By securing this project, the Company now has 100% ownership of two quality assets that we are confident can add significant value for our shareholders,” Afzaal Pirzada, Rock Tech’s vice president of exploration and interim CEO, commented. In the short term, the company plans to complete a maiden NI 43-101 compliant resource estimate for the project.

The acquisition trend continued the next day, with Sunset Cove Mining (TSXV:SSM) signing a mineral option agreement with a group of Quebec prospectors to buy 100 percent of the Lac Guéret West graphite property, also located in Quebec. The company’s press release notes that it is located west of Mason Graphite’s (TSXV:LLG) Lac Guéret graphite project, which, according to a preliminary economic assessment (PEA) has a pre-tax net present value of $364 million at an 8-percent discount, a 33.7-percent pre-tax internal rate of return and a mine life of 22 years.

For its part, Mason last week filed a on SEDAR a NI 43-101 compliant technical report that breaks down the PEA for its Quebec-based Lac Guéret graphite project. Operational highlights of the PEA include annual production of 50,000 metric tons of graphite concentrate and graphite recovery above 96 percent.

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 

Related reading: 

Flake Graphite Prices Have Bottomed: Simon Moores

Flake Prices Settle Higher Than Expected

PROJECT UPDATE: Syrah Claims Mozambique Graphite-Vanadium Project is World’s Largest