China’s graphite industry struggles to adapt: ICCSINO

The graphite industry is expected to face ongoing challenges due to supply demand imbalances, according to industry experts

Despite a positive long-term outlook for new energy vehicles and energy storage, experts at the ICCSINO conference in Qingdao on Thursday April 13 suggested that the graphite industry is expected to face ongoing difficulties for the foreseeable future due to supply-demand imbalances.

“The height of the graphite industry was in 2022. There was a prevailing sense of optimism amid reports of supply shortages and robust demand,” an attendee at the conference said. “However, in just one year, everything has changed. Bearish sentiment is now widespread due to increased graphite production capacity.”

Graphite anode prices, both synthetic and natural, hit record highs in the first half of 2022 due to high costs and tight supply over much of the recent two years while surging demand added further support.

In mid-March 2022, Fastmarkets’ price assessment for graphite spherical 99.95% C, 15 microns, FOB China was at a nine-year high of $3,500-3,800 per tonne, driven up by high flake graphite prices, robust demand and high costs for synthetic anode, which is an alternative to natural flake graphite.

However, the price started to drop at the end of the second quarter of 2022, with the trend lingering well into 2023.

Fastmarkets’ latest price assessment for graphite spherical 99.95% C, 15 microns, fob China was $2,300-2,500 per tonne on April 13, dropping for a third consecutive week.

Flake graphite price movements mirrored those of spherical graphite and reached a high of $830 per tonne in October of 2022 before beginning to fall moving into 2023.

Fastmarkets’ latest price assessment for graphite flake 94% C, -100 mesh, fob China was $720-738 per tonne on April 13, a 12.16% drop from its October 2022 high.

While the graphite market remains bearish due to slow demand and high production capacity, market participants are increasingly focusing on identifying challenges and seizing opportunities to adapt to evolving market dynamics.

Anode oversupply affecting graphite prices

The fast-growing lithium-ion industry has resulted in robust expansion of capacity in China’s anode sector in recent years, with the effective capacity in 2023 expected to reach 4.5 million tonnes, sources said.

“China’s anode output reached 1.41 million tonnes in 2022, up by 68% from the prior year, with natural graphite anodes accounting for 18.2% of the total. Meanwhile, delivered anodes were roughly 1.37 million tonnes in 2022, up by 90% from a year earlier, benefiting from surging output of new energy vehicles in 2022, thus lending support to the lithium-ion battery sector,” a speaker at the conference said.

Fastmarkets’ price assessment for lithium carbonate, 99.5% Li2CO3 min, battery grade, spotprice range, exw domestic China was 158,000-186,000 yuan per tonne on Thursday April 13, down by 10,000-24,000 yuan from 168,000-210,000 yuan per tonne a week earlier, and down by 182,000-186,000 yuan from 340,000-370,000 yuan per tonne on March 2.

“There is widespread bearishness [however] throughout the lithium-ion battery supply chain. Lithium carbonate prices have fallen more than expected and beyond expected and anode production rates remained below 50% nationwide,” Min Yue, founder of Zhejiang Tanyi new energy, said. “Overcapacity is expected to become the ‘new normal’ for anodes in the near term.”

Industry participants at the conference unanimously agreed with Min Yue’s comments, citing that in addition to overcapacity, other headwinds faced the graphite industry, namely price competition, lack of innovation and capacity expansion that exceeds demand.

IRA presents challenges for graphite market

Aside from oversupply, another challenge facing the graphite industry is the Inflation Reduction Act (IRA), one of United States president Joe Biden’s major initiatives to foster green development of local supply chains.

Biden’s IRA contains stipulations about the manufacture of EVs in the US, particularly that their batteries must come from either local sources or free-trade partners.

“The challenges brought about by the IRA include threats to our exports or expansion into international markets,” Min Yue said. “Meanwhile, local subsidies are expected to trigger the entry of more new players into the market. However, advantages such as an integrated graphite anode supply chain and lower costs will help producers in China find a way [to cope]”

The exact impact of IRA on the anode sector is currently unclear. However, sources report that industry participants are taking initiatives to set up facilities in some Southeast Asian countries to partially transfer capacity while keeping production costs low.

Graphite market opportunities may emerge from current challenges

Industry participants at the event believed that the current overcapacity in China’s graphite market will reshape the industry while it unfolds.

While the fallout from capacity expansion is amplifying market weakness, changes at this step could also create new opportunities for supply chain optimization and product standardization, sources said.

“In my 25 years’ of experience in the graphite industry, the present weak performance isn’t as bad as it used to be. There was a time when -195 was sold at 1,250 yuan per tonne [compared with 4,800 yuan per tonne now],” a graphite producer said. “I believe now would be a good time to reshuffle the industry, though it will be a tough period for those with neither upstream resources nor regular downstream clients.”

Aside from supply chain integration, green mining, as well as environmental-friendly practices could be another avenue for producers to keep up with current market trends.

“We are seeing increasingly strict environmental policies. Green mining will become a focal point [for the industry] because it is getting more difficult to get approval for larger tails,” a second graphite producer said.

Global anode demand is expected to reach 2.32 million tonnes in 2024, compared with 1.74 million in 2023, which provided some hope to industry participants, sources told Fastmarkets.

“There will be ongoing robust demand from the lithium-ion battery sector in the next few years following Tesla’s ambitious goal of producing 20 million units of electric cars per year globally by 2030,” another speaker at the conference said. “ This means that a significant amount of lithium carbonate will be required and there [will likely be] corresponding demand for carbon-based anode materials.”

Tesla also announced on Sunday April 9 that it will build a new mega factory in Shanghai, dedicated to manufacturing the company’s energy storage product Megapack. The new factory will initially produce 10,000 Megapack units per year, equal to around 40 GWh of energy storage, according to local Chinese news source Xinhua.

Furthermore, growth in the energy storage sector is expected to grow quickly in the next decade, with total shipment of storage battery reaching 130 Gwh in 2022, up by 170.8% from the previous year.

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