Synthetic graphite plays a significant role in a few highly specialized industries. Here’s a look at what it is and why investors should know about it.
Synthetic graphite is a unique material that is often used in metal manufacturing and in energy devices like batteries and solar panels.
It’s highly purified in terms of carbon content and is known for its ability to withstand high temperatures and corrosion. Those characteristics make it a great option for highly specialized industries that need predictable results from their carbon inputs.
Understanding the difference between synthetic and natural graphite is important for investors, as industries typically need a specific type of graphite for their applications. Here’s a look at synthetic graphite and what is has to offer end users.
Synthetic vs. natural graphite
Synthetic graphite is intriguing for investors because of its presence in lucrative industries with rising demand. However, before diving into the space it’s important to understand the nuances of synthetic graphite and some of the misconceptions surrounding it.
Stephen Riddle, president of Asbury Carbons, brought this point up in an interview with the Investing News Network. Riddle said, “[t]he first misunderstanding in the graphite market is what I call graphite — the term graphite. It’s quite an umbrella term. Under the graphite umbrella you’ve got all these different types of graphite, both synthetic and natural, that are used in their own applications and do not compete. They have no relationship except they’re both called graphite.”
Synthetic graphite is significantly more expensive than natural graphite and is more pure in terms of carbon content. It can cost double or triple the standard price for natural graphite, but tends to behave more predictably, which is why it has found a niche in solar energy storage and arc furnaces.
Restrictively high prices and specific use cases for synthetic graphite mean that in most markets it doesn’t often compete with natural graphite.
Types and uses of synthetic graphite
Synthetic graphite typically comes in two forms: electrodes and graphite blocks. The form of graphite directly determines which industries it will be used in.
Electrodes are primarily created using petroleum coke as a precursor and are almost exclusively used in electric-arc furnaces — these furnaces are used for melting steel and iron, and producing ferroalloys.
Graphite blocks — or isotropic graphite — are primarily used for energy storage in the solar industry. These blocks are made using the same petroleum coke process as electrodes, but differ slightly in the structure of the coke used.
Secondary synthetic graphite
Producing synthetic graphite also creates a by-product known as secondary synthetic graphite — typically yielded as a powder. It’s considered a low-cost material and some forms of it can compete with natural graphite in applications like brake linings and lubricants.
Primary synthetic graphite
Primary synthetic graphite is not a by-product like its secondary counterpart. It is typically used for high-end lithium-ion batteries, but is expensive to produce.
Riddle noted that primary synthetic graphite is “expensive to make because you’re making it just like an electrode except you’re not making a block, you’re just making a powder. So that is going to cost more than secondary synthetic because it costs you almost the same amount as making an electrode.”
Graphite market information
Graphite received a boost in Q4 2017 after quite a long period of underwhelming performance. Challenged by high Chinese supply, declining steel production and other issues, for years the critical metal did not perform as experts hoped.
More recently, the market has improved, bolstered by the ever-growing electric vehicle market. According to Roskill, graphite demand is set to “enter a period of rapid growth and price escalation,” driven by usage from this developing sector.
The firm notes that while steel demand has traditionally driven graphite prices, “rapid growth in demand for natural flake graphite and synthetic graphite in the lithium-ion battery industry” is now seen underpinning total graphite demand growth of 5 to 7 percent a year between 2017 and 2027. Overall, the global graphite industry could be worth US$29.05 billion by 2022.
As a whole, it appears that the future is bright for graphite. However, synthetic graphite will still face somewhat of an uphill battle. Natural graphite is set to be the fastest-growing subset of graphite through 2022 — and improvements in purity are helping natural graphite enter the nuclear technology and high-end battery markets, which have typically been owned by synthetics. Price will certainly continue to be a determining factor in the competition between natural and synthetic graphite.
Would you invest in synthetic graphite? Why or why not? Tell us below.
This article is based on an interview conducted with Stephen Riddle in 2013.
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Securities Disclosure: I, Amanda Kay, hold no direct investment interest in any company mentioned in this article.