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China’s natural graphite anode market has been under pressure since capacity for synthetic graphite production rose in the second half of 2022, with cuts in the subsidy for electric vehicle (EV) purchases then hitting demand. But the market will revert to deficit in the second half of the year, according to Fastmarkets research.
Prices for spherical graphite (SPG) materials in China rose strongly from April 2021 to March 2022 in response to increased demand from the rapidly expanding electric vehicle (EV) market.
Graphite makes up the majority of the anode in EV lithium-ion batteries. Cellmakers can use natural active anode material (SPG) or synthetic graphite, or blend the two in their anodes.
The primary advantages that natural graphite anode material has over its synthetic equivalent are lower cost and its smaller carbon footprint, due to the large amount of electricity required to produce synthetic graphite.
After March 2022, however, the market stabilized before prices began to fall in June of that year when production capacity for synthetic graphite rose.
There is a strong correlation between uncoated spherical graphite prices (uSPG) and the graphitization costs for the production of synthetic graphite. The coating of SPG is the final step in producing active anode material.
Synthetic graphite has been the dominant material in anodes over the past five years and it leads the trends in price movements for uSPG.
“Graphitization costs and uSPG prices were at their highest in May and June 2022,” Fastmarkets research analyst Georgi Georgiev said. “Since then, graphitization costs have fallen by almost 50% and uSPG prices have followed, dropping by more than 28%.”
“In the longer term,” he added, “uSPG prices might become more autonomous, with sustainability factors shifting demand to natural graphite.”
The Chinese government ended its subsidy system for EV purchases in January 2023, and this slashed demand for natural anode material in the immediate term, according to market sources, with consumers slowing their purchasing.
Output of EVs in China plunged by 46.6% month-on-month and by 6.9% year-on-year to 425,000 units in January 2023, while sales fell by 49.9% month-on-month and by 6.3% year-on-year to 408,000 units, according to the China Association of Automobile Manufacturers (CAAM).
As a result, the price for uSPG has been under pressure since mid-2022.
Fastmarkets’ price assessment for graphite, spherical, 99.95% C, 15 microns, fob China, dropped by 25.35% over the period from last June to March 2 this year, when it was $2,500-2,800 per tonne.
“We haven’t seen any positive signs for demand in the first quarter,” a battery manufacturer in China said. “It might be the second quarter before there’s any recovery. The problem is that prevailing destocking among battery manufacturers and original equipment manufacturers [OEMs] has resulted in lower demand for upstream raw materials.”
Elsewhere, battery makers have also put pressure on anode producers to cut anode prices, due to their weak consumption rates, with some anode producers at less than full operation in January and February, according to market sources.
While falling EV sales and output were partly explained by seasonal trends, increased graphite supply has fuelled bearish market sentiment, the sources said.
“In spite of the positive expectations among industry participants, slow sales growth in the first quarter, as well as high inventories held by OEMs, mean that natural or synthetic anode prices will continue to face downside risk,” the battery producer source said.
“The rapid expansion of graphitization in China will result in further cost falls in anode production, and thus lower anode prices. Total nameplate capacity of graphitization was said to be around 2.5 million tonnes [per year] last year and was expected to reach 3 million tpy in 2023,” the same source added.
While demand in overseas markets has shown a subdued upward trend, bearish sentiment has prevailed in the domestic market, according to sources in China.
And China remains the dominant global consumer of spherical graphite.
Total exports of China’s spherical graphite came to 62,272 tonnes in 2022, up by 9.66% from a year earlier, according to Chinese customs data. But falling anode operation rates in China and growing synthetic anode supply were adding pressure to the domestic spherical graphite market.
New orders for uSPG were now falling, with major anode producers consuming existing stocks, a graphite producer said.
“With the current price of fine flake graphite, many spherical graphite producers are facing narrow profit margins or losses,” a second graphite producer told Fastmarkets. “Some spherical graphite producers are now on halt, with unknown restart dates.”
The fall in the price of fine graphite flake – the feedstock for spherical graphite – has also removed support for the natural anode market.
Fastmarkets’ latest price assessment for graphite flake, 94% C, -100 mesh, fob China, was $750-770 per tonne on March 2, down by 8.43% from the start of the year.
The outlook for spherical and natural flake graphite will remain weak in the second quarter of 2023, according to Fastmarkets’ principal battery raw materials consultant, Amy Bennett.
“We expect to see flake and uncoated spherical graphite prices remain under pressure during the first half of 2023,” she said, “reflecting subdued demand from the EV industry, declining costs and prices for competing synthetic graphite material, and the strong US dollar enabling Chinese producers to reduce their prices in US dollar terms, while maintaining revenue in local currency terms.”
As a result, Fastmarkets research has reduced its 2023 price forecasts for -100 mesh material, FOB China, to an average of $875 per tonne, and uSPG prices to an average of $3,100 per tonne.
But Fastmarkets research expects stronger demand and that restocking activity will propel prices higher in the second half of the year.
“With demand for graphite from the battery sector forecast to rise by 37% year-on-year in 2023, we expect the current pricing lull to prove temporary. We see demand growth outpacing supply in the second half of 2023,” Bennett said.
And the market is expected to tighten further in 2024, with continuing growth in demand exceeding the likely increases in supply.
“Deficit conditions will worsen in 2024,” Bennett said, “with demand for graphite from the battery sector forecast to rise by a further 29%, while delays to new natural graphite projects persist, propelling prices higher through 2024.”
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