Graphite demand recovery uncertain despite falling freight costs

Demand for exports of Chinese graphite material are still muted despite a sharp fall in freight rates out of the country, which has allowed offer prices to come down

China used to be a major exporter of graphite flake in international markets. But this dominant position has been eroded by surging freight costs over the past two years, as well as emerging domestic applications and alternative sources of material.

Freight costs from China to Europe were around $1,500-2,500 per 20ft container in November 2022, compared with around $10,000 per unit last September, according to market sources.

This gives flexibility to lower their prices to Chinese market participants which sell graphite on a CIF basis.

An opportunity has arisen for China to resume its role as a major graphite exporter in the international markets.

Fastmarkets’ assessment of the price for graphite, amorphous, 80% C, -200 mesh, FCL, cif Europe, was $555-720 per tonne on November 17, down by $115-205 per tonne from $760-835 per tonne in June.

The corresponding price assessment for graphite, amorphous, 80% C, -200 mesh, fob China, was down by $80-115 per tonne to $435-500 per tonne over the same period.

From January to October 2022, China’s total flake graphite exports were around 88,344 tonnes, down by 9.12% from 97,213 tonnes the year before, according to Chinese customs data.

Meanwhile, China’s total imports of flake graphite soared to 138,634 tonnes from January to October, against 44,816 tonnes the previous year.

Market participants mostly took an uncertain view of China’s graphite export recovery in the near term, against the backdrop of slow demand in the international market, concern about mis-sold “fake flake”, and strong demand in the domestic anode and expandable graphite market.

Slow demand in refractories

“We are not seeing too much increase in [numbers of] inquiries from clients outside China due to weak industrial performance,” a graphite trader in China said. “There have only been sporadic deals from our long-term clients.”

Buyer concerns about the inadvertent use of “fake flake” graphite were an incentive to major refractories producers to procure large-flake graphite from outside China, especially Madagascar, to guarantee the quality of the material.

Madagascar has become another major production hub for large-flake graphite and its freight rates have been more stable than those on routes out of China, according to market sources.

“The fall in freight rates from China has resulted in lower Chinese prices, which has been passed on to consumers,” a producer source said. “It is good that the market for Chinese flake has softened because it has narrowed the premium for Chinese material over African [output].”

The island nation off southeast Africa exported 37,009 tonnes of flake graphite to China from January to October this year, accounting for 26.70% of China’s total imports in that period.

“Major refractories in Europe might keep their choice [to buy from outside China] because of concerns about the use of ‘fake flake graphite’,” a producer source outside China said. “But slow demand would continue to pressure the graphite market, be it in Europe or Asia.

“We are in 2023 contracts negotiation now,” the same source added. “It’s possible that some buyers will cancel volumes given the negative market outlook in the coming year.”

One refractory source told Fastmarkets that it still had more than two months’-worth of graphite left from last year’s annual contract, indicating soft downstream demand.

Weak consumption rates have limited flake producers’ capacity to increase their export volumes despite the capacity to reduce prices.

“Overall, it’s more to do with the simple supply-demand balance. There is too much coarse material on offer at the moment,” a second producer source said. “As well as falling freight rates, the European market has been hit by steel and refractory cutbacks, as well as demand for construction materials.”

Expandable graphite demand increases

Strong development of the expandable graphite market in China and internationally meant that more large-flake graphite would be consumed domestically.

Fastmarkets’ assessment of the price for graphite flake, 94% C, +80 mesh, fob China, was $1,200 per tonne on December 1, unchanged since mid-October.

“Tight supply of large-flake graphite, and relatively sound demand for expandable graphite in international markets such as South Korea and some destinations in Europe, have added support to the large-flake market in China,” a trader in China said.

Nevertheless, falling freight costs might trigger a recovery in China’s mid- and low-carbon graphite flake export demand.

Material with carbon content below 94% is used in the traditional foundry and refractories sectors, while exports of flake graphite with higher-carbon content could be less affected, some market participants said.

“Exports to international markets such as India and Pakistan might recover slowly, given that those markets could be more price-sensitive,” a third producer outside China told Fastmarkets, “while exports from China have more advantage over the corresponding sources outside China.”

Increased demand leads to anode development

Another factor behind the graphite export story is the robust development of the graphite anode market in China, which meant that more fine flake would be consumed within China.

Fastmarkets’ assessment of the price for graphite flake, 94% C, -100 mesh, fob China, rose by 8.43% to $830 per tonne on December 1 compared with the start of the year, when it was $760 per tonne. This was mainly driven by demand from spherical graphite production and supply concerns.

China’s imports are dominated by Mozambique, which accounted for 72.20% of the total from January to October.

Demand for uncoated spherical graphite has been low in the past couple of weeks because of oversupply and subdued short-term demand in the lithium-ion battery manufacturing sector, according to market sources.

Fastmarkets’ price assessment for graphite, spherical, 99.95% C, 15 microns, fob China, was $2,800-3,000 per tonne on December 1, stable for two consecutive weeks after falling by 6.45% in the middle of November.

Despite that, demand for flake fines used for anode production was expected to be approximately 470,000 tonnes in 2023, while total natural graphite demand from all sectors was forecast to exceed 1.5 million tonnes in 2023.

Chinese output of uncoated spherical graphite (uSPG) was expected to be around 300,000 tonnes in 2022.

To keep up with demand, expected uSPG output will need to be close to 450,000 tonnes in 2023, according to Amy Bennett, principal analyst at Fastmarkets Research.

China’s annual output of flake graphite has averaged 707,400 tonnes over the past five years, according to data from the US Geological Survey (USGS). This, Fastmarkets understands, would mean a supply gap that needs to be filled with imported materials.

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