Graphite Market at a "Turning Point" as Demand for EV Batteries Rises
As the graphite market approaches a "turning point," here are five key themes investors interested in the sector should watch.
Demand for graphite used in electric vehicle (EV) batteries is set to soar in the next decade, and even though prices haven’t yet rallied as much as lithium, the market might be at its turning point.
The role of graphite, the most commonly used anode material, took center stage at this year’s Graphite and Anodes conference in Los Angeles. Hosted by Benchmark Mineral Intelligence, the two-day event brought together industry leaders from the natural and synthetic graphite sector as well as companies innovating in the anode space.
Here’s a brief overview of the main themes discussed at the conference that every investor interested in the battery metals space should keep in mind.
1. Demand from EV sector to become main force in the graphite market
During the event in Los Angeles, Stephen Wells, chief financial officer at Syrah Resources (ASX:SYR) — the world’s largest natural graphite producer outside China, said demand for graphite is expected to increase significantly in the next 10 years.
“In prior years, we were assessing options and talking about strategies and making decisions in an environment where EVs were coming,” he said. “We are now doing so in an environment where EV growth is here.”
The electric vehicle industry has been growing in the past two years, surpassing the 6 million mark in 2021. Many forecasts point to a strong market in the coming years as carmakers continue to commit to the electrification of their fleets and governments push towards a green energy transition.
When compared to lithium or nickel, graphite has always been overlooked, in part because its industrial uses have always been the main driver for demand — but that might be about to change.
“We're now projecting that by the end of next year, batteries will be the number one leading market for graphite,” Andrew Miller, chief operating officer at Benchmark Mineral Intelligence, said during a keynote presentation. “So this is a turning point for the industry.”
2. Deficit ahead for synthetic and natural graphite markets
In order to meet this unprecedented demand, Benchmark Mineral Intelligence estimates that up to 150 new operations across natural and synthetic graphite are needed by 2035.
“When you look towards the tail end of the decade, what you can see is both natural and synthetic graphite are facing serious structural issues to meet that type of demand and fall into a significant deficit,” Miller said.
3. Money needed to further develop supply
Investments in the sector continues to be the biggest challenge faced by graphite miners today as they push forward to develop their projects.
“Funding is the biggest challenge facing any graphite companies, but a more recent challenge is inflation, as capital costs are going up,” Phil Hoskins, managing director at Evolution Energy Minerals (ASX:EV1), told the audience during a panel discussion. “We've got six or seven banks that have submitted an expression of interest into the financing, but going through the opacity of the market and how it's not an London Metal Exchange traded commodity, these are things we've been grappling with, finances, for years.”
Money needs to start coming urgently to meet the future issues that the industry is facing, as bringing new mines online is not an easy task.
“The issue in the extraction is the timeframe to bring that new raw materials to market,” Miller said. “So when we talk about getting fresh, new raw material out of the ground, the industry needs to start developing those operations today to meet that potential deficit of 2027, 2028.”
4. China will be difficult to displace in the anode sector
China's leading role in graphite is clear, with it producing almost all of the graphite that's used for anodes. The Asian country controls 64 percent of global graphite mining production and 91 percent of anode production.
Despite moves from western governments to decrease dependence from China, the rest of the world is playing catch up when it comes to graphite.
“I think we'd be foolish to sit here and say that we're going to displace China overnight. Of all areas of the supply chain, the graphite anode part is where China is the most dominant,” Miller said. “So displacing China is going to be incredibly difficult, but it's essential. And it needs to be done very quickly. We need to diversify that supply base.”
5. Legislation is going in the right direction, but might not be enough
A topic that was brought up in several discussions during the Graphite and Anodes event this year was government support for the sector, including the recently launched Inflation Reduction Act, which US President Joe Biden signed into law last August.
“It's a fantastic shot in the arm from a financial perspective, but more importantly, it's really raising the attention of everybody and looking at how important it is to solidify the domestic supply chain,” said Eric Stopka, CEO of synthetic graphite producer Anovion.
Commenting on the Inflation Reduction Act, he said there was a lot of effort put into the legislation.
“But with the kind of volumes that we're looking at, and with the current domination of the industry by China, I don't think it goes far enough,” Stopka said, adding that a lot of provisions in the bill are still being evaluated for execution.
“You cannot water down the provisions of the bill as it was signed into legislation. But you also have to be realistic in terms of how quickly you're scaling up this requirement for US supply.”
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
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