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18 January 2023

Graphite: it can’t stay in China forever

Graphite (or crystalline carbon) is the dominant anode material used in the manufacturing of lithium-ion batteries and is both naturally mined and produced synthetically. In 2021, China exported nearly 200,000 tons of natural graphite, by far the largest single exporter of the material with Germany a distant second exporting just 17,000 tons. Interestingly, Turkey is considered to have the most significant reserves of the material despite exporting just 2,500 tons of natural graphite in 2021.

Natural graphite is the preferred feedstock for graphite anodes in terms of specification, as it results in higher capacity batteries and is cheaper than its synthetic counterpart, but synthetic anodes perform better when considering deterioration, charging speeds and electrolyte compatibility.

It’s arguably the case that China has an even greater stranglehold on the market for natural graphite than it does on lithium, since it also handles a far greater proportion of the material’s extraction, unlike lithium where this is primarily handled by Australia, Argentina, and Chile.

One of the issues with synthetic graphite is that the price follows power prices, this is because it is produced from heating carbon sources like coking coal to temperatures of between 2,700°C  to 3,000°C in a process called graphitization, which because it uses a significant amount of energy carries a significant cost. This inextricably links synthetic graphite prices to energy markets, primarily that of the Chinese market. The two main markets for synthetic graphite are in EV anode manufacturing and steelmaking where it is used as a recarburizer which assists in the smelting of some alloys or in graphite electrodes.

As happens frequently with Chinese feedstock markets such as polysilicon within the solar PV supply chain, the country’s massive investment capability tends to create swings in price as the country shifts from undersupply to oversupply and vice versa. 2021 saw graphitization prices increase significantly, and the subsequent expansions in capacity have materialized during a period of slightly lower demand for batteries within China, largely attributable to the winding down of EV subsidies and increasing concerns over the spread of Covid-19 within the country. This has led to the price of synthetic anodes falling once again, bringing it nearer to competing with natural graphite anodes.

This cycle is likely to continue, as battery demand recovers following either policy or economic conditions improving, natural graphite anodes will once again become economically superior due to the increasing price of synthetic graphite production, this will also happen in the case of China experiencing extended power problems as it did in 2021.

The instability of the artificial graphite market with its dependence on power prices and the activity of the steel industry makes it a somewhat unattractive prospect for use in EVs in the future, because of this we expect natural graphite to become increasingly important in the manufacturing of EV anodes as some of the issues concerning longevity are addressed through technological advances over time. Fluctuations in the price of synthetic graphite during industrial and economic lulls will draw attention away from natural graphite production expansion in the same way that falling natural gas prices can slow investment in alternative energy production.

The Inflation Reduction Act’s stipulations that battery materials must be produced and refined within US-allied territories complicates this matter as it effectively alienates the Chinese graphite markets, which is the vast majority of global supply and exports. This effectively necessitates the development of an entirely new supply chain within US-allied territories for both natural and synthetic graphite.

Canada has had a graphite quarry operating in British Columbia since 2001, and is just 70km north of the US border, making it a good start for graphite exports to the US. The problem comes from capacity, Canada produced just 12,000 tons of graphite in 2020, ranking 10th globally with just over 1% of global production. Canada has significant capacity for expansion due to the availability of natural graphite deposits in both Quebec and Ontario. Quebec has 10 open pit graphite mine applications undergoing environmental assessment.

Synthetic graphite production is geographically sensitive in a different way to natural graphite, the best place for synthetic graphite production is locality to major carbon sources like steelworks that can provide coking coal, or coal plants themselves that can provide coal tar. The issue here comes from the necessity to move away from coal as a feedstock, no environmental assessment for a graphite processing facility is going to look kindly upon necessitating that a coal plant be running nearby. While this isn’t an issue in China because of the country’s continued abundance of coal, Canada seems to at least be trying to remain environmentally conscious, and will need to find alternative sources of carbon that are less environmentally damaging.