For our 2016 graphite outlook, please see: Graphite Outlook 2016: Megafactory Deals on the Horizon?
The graphite space has many players and is known for being competitive, but if there’s one thing market participants can likely agree on it’s that 2014 was the year of Tesla Motors (NASDAQ:TSLA).
The Elon Musk-led electric-car maker burst onto the scene in February with the announcement that it plans to build a $5-billion lithium-ion battery gigafactory. Industrial Minerals’ prediction that it could boost natural graphite demand by 37 percent by 2020 immediately put those in the graphite industry on the alert.
Since then, Tesla has moved forward rapidly. It announced the location of the gigafactory — Nevada — in September, and at the end of November Simon Moores of Benchmark Mineral Intelligence revealed that construction of the gigafactory is “up to one year ahead of schedule as preparation for the site continued in Q4 2014 at an accelerated pace.” He also said “agreements with mineral and metal companies” — in other words, companies that will provide the graphite, lithium and cobalt the gigafactory will require — will be announced in 2015, though likely not until the end of the year.
But while the gigafactory was certainly the centerpiece of the graphite market in 2014, other events made waves as well. Let’s take a quick look at a few of them before moving on to what’s in store for 2015.
- China’s graphite clean up: At the end of 2013, China ordered 55 graphite miners and processors in the city of Pingdu to cease production on environmental grounds. While it was hoped that the move would boost graphite prices, ultimately that didn’t turn out to be the case. As Stephen Riddle of Asbury Carbons said recently, “there’s just been a few of the higher-purity grades where supply is closer to demand.” He added, “[f]or the lower purities of below 94, it’s gone in the opposite direction.”
- New producers: Over the summer, Flinders Resources (TSXV:FDR) produced the first graphite concentrate at its Sweden-based Woxna graphite mine, winning a years-long race to become the first of Canada’s junior miners to produce flake graphite. In an email to Graphite Investing News Moores said that the company, along with StratMin Global Resources (LSE:STGR), which began production in Madagascar this year, is part of “a new generation of graphite suppliers.”
- Consolidation potential: Later in 2014, Flinders made another big move, announcing plans to acquire Big North Graphite (TSXV:NRT), owner of the Mexico-based, past-producing El Tejon flake graphite mine and mill. The news sparked hopes of industry consolidation amongst analysts.
- Megafactories: While it may be the most talked about, Tesla’s gigafactory isn’t the only electric-vehicle battery factory on deck. Moores pointed out that 2014 also saw LG Chem (KRX:051910) break ground on its own factory in China, while Foxconn Technology (TPE:2354) has plans for its own plant in the same country. As he said, “the megafactories are coming.”
Although there were a lot of big announcements in 2014, the year wasn’t actually particularly exciting in terms of supply, demand and prices. Moores explained, “2014 was slower than expected, certainly the second half of the year.” And though “a form of recovery was seen with more volumes being shipped and sold in general … it could not constitute a rebound.”
Encouragingly, Moores expects more activity in 2015 than was seen in both 2013 and 2014. “I expect steel refractories to grow at a slow rate, but batteries to emerge in a bigger way,” he said, but noted, “prices will depend on actual supply and demand and whether buyers will begin to panic over [the] pending [megafactory-related] shortage.” That said, market participants can expect China’s graphite clean up to have more of an effect in 2015. “The impact so far has been minimal because demand is so low, but it is giving more impetus to new sources outside of China,” Moores commented.
Meanwhile, he sees the junior/development market starting to emerge. “The industry needs new mines — nearly everyone, regardless of what company they represent, would agree with that,” he said. And while “the industry believes many public graphite companies are overvalued … they will need new supply. So it will be interesting to see when this reaches breaking point.”
In closing, he reminded those in the graphite space to watch Tesla and LG Chem — as if anyone could forget — emphasizing, “these end users will be the catalysts for everything that happens in the graphite space in 2015.”
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Interviews conducted by the Investing News Network are edited for clarity. The Investing News Network does not guarantee the accuracy or thoroughness of the information reported. 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.