Article by Deborah Sterescu on the Graphite Express conference in Toronto last Wednesday.
Graphite and "rising demand" were the buzz words of the past few weeks around the world, highlighting the importance of developing future supply of graphite given the expected rise in demand, which is being driven upwards by green technology.
The industrial mineral has the highest natural strength and stiffness of any material, along with the lightest weight of all reinforcements. It is also an excellent conductor of electricity and heat, as well as a strong lubricant.
Graphite has many applications today, ranging from refractories, brake linings and steel-making uses, to lithium-ion batteries and fuel cells - whats called "twin avenues of demand" from both today's and tomorrow's uses.
The need for graphite in lithium-ion batteries is projected to grow dramatically, with these batteries found in several electronic devices. There is currently 15 grams of graphite in a smartphone battery.
Indeed, in the last decade, graphite demand has grown by five percent annually, driven by Asian steel and auto markets, to an estimated $12.0 billion worldwide market in 2011. Output, however, was 1.4 million tonnes last year, and is projected to drop to 1.1 million tonnes in 2012.
Graphite fits into two primary classifications: natural graphite and synthetic graphite. Natural graphite, which is a third of the cost of synthetic graphite, exists in three forms: flake, amorphous, and vein or lump graphite.
Consumption of flake graphite is growing as amorphous graphite consumption falls and accounts for at least 50 percent of consumption in mature industrialized economies. Flake graphite - the most actively pursued type and associated with next-generation technologies - is made up of layers of graphene, which is the minerals' base structural element.
With a huge influx of interest in the graphite space going forward, there are a number of factors to consider in terms of demand, including electrification and the rising quality of life in the emerging world, seeing graphite "squarely in the crosshairs" of this.
Other factors are the growing trend of resource nationalism in countries like China, and the itch for security of supply from companies like Honda or Toyota who are hoping a lack of the material does not disrupt their supply chain.
About 80 percent of the world's graphite comes from China, but growth in its mine output has slowed with the closure of natural graphite mines in Hunan Province - a concern from both a consumption and production standpoint.
With China growing ever-more protective of its resources, there is a clear need for additional supply of graphite even without next-generation uses. China is known to artificially increase prices through levies and by forcing the closure of some mines within its borders.
Three major global graphite producers have committed to spend over $1 billion to expand their capacity, signifying that the graphite interest is merely just beginning, and that the space is set to evolve even more quickly than anticipated.
India is the second largest producer of the material, followed by Brazil, North Korea, Austria, and Canada, with the US currently having no output of graphite.
Should demand double by 2020, spawned by growth in the electric vehicle market alone, the competition for supply between the East and West could create a bonanza for investors who bet on junior graphite developers today.
Canada is leading the way in graphite exploration activity, with a number of companies owning a cluster of graphite properties in Quebec and Ontario.
When looking at junior players in the sector, it is important that companies have a "balanced footprint", with their inventory not slanted too much towards one given end-use, so as to insulate the company from potential demand shocks.
Companies in the space must know where they are going to sell their entire inventory to and if they can do it at a profit.
The market, is negotiated by buyers and sellers, which means that juniors may not be able to realize the $2,500-$3,000 per tonne price at which large flake graphite sells.
Still, investing in new graphite exploration and mine development, and the expansion of existing deposits, are critical for the creation of a level-playing field with China.
Indeed, it appears that juniors are scrambling to ensure a steady supply of the critical material.
China's control of graphite production draws a comparison to phosphate.
The country handed out free loans to bigger phosphate companies at one point to force consolidation in that industry to ensure control.
Graphite is no different than phosphate.
The material is in the government's headlights.
TTR.
MOX Price at posting:
6.3¢ Sentiment: LT Buy Disclosure: Held
