Europe’s graphite output will continue to lag surge in demand

There is strong political will and demand growth supporting Europe’s natural and synthetic graphite supply chains, but gaining permits for new projects will be the biggest stumbling block

This prediction comes from Corina Hebestreit, secretary general of the European Carbon Graphite Association (ECGA).

Graphite is a critical raw material, according to the EU, and demand is expected to rise by 20-25 times in the period 2020-40, according to the International Energy Agency.

Europe is currently reliant on imports to meet its natural graphite requirements but the EU plans to increase domestic production.

“It is very difficult to predict the volume of European [graphite] flake production that will come onstream in the next 10 years,” Hebestreit told Fastmarkets on November 16. “But it is possible that Europe will be able to meet 20% of natural flake graphite demand with its own production.

“The Scandinavian countries have the highest prospects for supplying Europe,” she added. “Greenland also has great opportunities for growth into the European market. The Greenland government and the EU already have had three or four years of cooperation, and strong links.”

The Talga Group and Mineral Commodities are actively producing graphite materials in Scandinavia, while GreenRoq is seeking to develop the Kalaaq and Amitsoq Island projects in Greenland.

Europe, however, will continue to be reliant on imports to meet its demand, particularly while the battery sector develops.

“We see growth of supply into Europe particularly coming from Africa, which will be increasingly important. And so will Canada,” Hebestreit said.

Mozambique and Madagascar have become important producers of natural graphite, and the sector is also developing in Tanzania.

Meanwhile, both Nouveau Monde Graphite and Northern Graphite have active projects in Canada.

For upstream projects to get off the ground, they need to win permission from the EU. But gaining permits is made more difficult by the lack of existing projects to provide benchmark comparisons.

“Currently, there are only two mines in Europe [and they] do not even deliver into the battery anode market,” Hebestreit said. “To have a valid reference point for permitting, there would have to be at least three mines and processing facilities with comparable technology, or you would have to compare worldwide.”

Both natural and synthetic graphite downstream producers in Europe will also need to overcome permitting hurdles if capacity is to keep pace with demand from the electric vehicle (EV) sector.

“I expect the biggest bottlenecks in the supply chain to come from permitting for the processing plants to produce spherical graphite,” Hebestreit said.

Processing is required to produce spherical graphite for the anode market from flake graphite feedstock, and adds considerable value.

Fastmarkets’ latest price assessment for graphite flake, 94% C, -100 mesh, fob China, was $830 per tonne on November 17. The price for graphite, spherical, 99.95% C, 15 microns, fob China, was most recently assessed at $2,800-3,000 per tonne on the same day.

And prospective spherical graphite makers will need to overcome public mistrust of these production processes for projects to be built.

“People don’t want a mine in their back yard, although they want to drive electric cars. And processing has developed a bad image, which presents a challenge in the public perception that we need to get over,” Hebestreit said. “Otherwise, imports will fill the gap for material that could be produced without problems in Europe.”

Difficulties in expanding synthetic graphite production will also lie with permitting for new greenfield projects or extending brownfield operations, Hebestreit said.

Anode battery demand

The ECGA expects there to be a decline in the proportion of natural graphite used in battery anodes with cell-makers choosing synthetic materials and the supply of natural active anode material tightening.

“OEMs [original equipment manufacturers] favor synthetic graphite because it is more reliable in performance and there is a more reliable supply chain,” Hebestreit said.

One criticism of synthetic graphite, however, is its relatively high carbon footprint due to the energy required to produce it, in comparison to the production of natural graphite.

Hebestreit believes this obstacle will be overcome, however, when Europe’s electricity grids become less carbon-intensive.

“If you look at the carbon dioxide emissions related to the production of synthetic graphite, 60% are related to the so-called ‘indirect emissions’ linked to the type of electricity sourced, so if you have a greener electricity grid the carbon footprint issues will improve considerably,” she said.

In the meantime, producers of synthetic graphite will focus on parts of Europe with ample, cost-effective renewable energy, such as Vianode in Norway, Hebestreit said.

Graphite electrodes

Synthetic graphite is also used to produce graphite electrodes for recycling steel scrap in electric-arc furnaces.

Demand for electrodes in Europe is currently weak, with steelmaking reduced in response to high electricity prices, reflecting a global weakening in consumption that has been reflected in prices.

Fastmarkets’ price assessment for graphite electrodes, ultra high power, fob China, was $3,380-4,100 per tonne on November 23, down by $700-820 per tonne from $4,200-4,800 per tonne on June 8.

“The current idling of electric-arc furnaces and the continued expansion of the Chinese synthetic graphite production has led to the current over-supply,” Hebestreit said.

The European Commission has sought to protect Europe’s graphite electrode production by imposing duties on imports of Chinese material.

“The anti-dumping measures have been successful in protecting the competitiveness of the European industry. They have helped to redress the balance of imports in favor of EU production,” Hebestreit said. “But the current electricity prices have been eating-up the advantage this has delivered.”

Demand will not return to Europe’s steel or electrode production sectors until electricity prices have fallen, according to Hebestreit. And in the meantime, European synthetic graphite producers are not expected to shift from electrode to anode material production without considerable investment.

“It is not so simple to make that switch,” she said. “Although some may be considering it, it takes investment. The production of anode material requires different materials and processing, so you cannot just move from one to the other.”

The prospects for Europe graphite electrode production remain positive for the medium and long terms because of the prioritization given to the recycling of scrap steel, the ECGA said.

Supply of scrap in Europe will also be boosted when internal combustion engine vehicles are phased out in favor of electric vehicles.

“At the same time, the policymakers and the industry are trying to ensure that more steel scrap remains in the EU for processing, rather than heading to Turkey, [the main global scrap consumer],” Hebestreit said. “So, if these materials stay in the EU, it will reduce the steel industry’s infeed costs, because we will have an increasingly captive market.”

The ECGA is concerned, however, that the EC’s current proposals to protect the continent’s steel sector under the Carbon Border Adjustment Mechanism (CBAM) will disadvantage its electrodes producers.

“The Commission’s concept of CBAM presents us with a major problem because the current methodology for calculation excludes comparison of ‘indirect emissions’,” she said. “This would mean that, for example, the CO2 footprint of the electricity embedded in the production of electrodes via coal power would not be considered.”

As a result, steelmakers would be incentivized to import graphite electrodes from outside of Europe, where production would carry a higher carbon footprint, according to Hebestreit.

“So, there is not much benefit in CBAM at present. It is hoped that the Commission will revise its methodology,” she said.

Future applications

While huge graphite demand growth is expected from the development of the EV market, ECGA expects even greater demand from the potential development of fuel cells to provide vehicles with power.

Fuel cells require graphite in bipolar plates to act as a conductor.

“The next growth market for graphite demand is expected to be in the fuel cells,” Hebestreit said, “which could be transformative for long-distance trucking and public transport, as well as in hydrogen generation.”

To keep up to date with the latest news in the graphite market, visit our dedicated graphite market page.

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