Industry integration to be the new trend for China graphite firms

Graphite companies in China are integrating their supply chains at home and abroad in response to the evolving market dynamics in the graphite industry, Fastmarkets has learned

The graphite industry has been on a roller coaster since 2022, witnessing record highs as well as continuously falling graphite prices as a result of slow demand and overcapacity.

Fastmarkets’ assessment for graphite flake 94% C, -100 mesh, fob China soared to a four-year high of $830 per tonne in the first half of 2022 before plunging by 32.22% to $535-590 per tonne on November 16.

The market for uncoated spherical graphite followed a similar trend with the graphite spherical 99.95% C, 15 microns, fob China price falling to an 11-year low in the middle of 2023 of $2,000-2,200 per tonne from a nine-year high of $3,500-3,800 per tonne in early 2022.

Overcapacity, slow demand and cost reduction have become the focus over the past 11 months, according to sources.

Overcapacity developed in response to tight graphitization capacity and strong demand in 2021-2022 that led to high production prices for anode, according to an anode producer in China.

“The price of graphitization reached as high as 27,000-28,000 yuan ($3,761-3,901) per tonne in the first half of 2022 from 13,000 yuan per tonne in 2020. The graphitization process requires high temperature and accounts for almost 45% of costs in mid and low-end synthetic anode production. To cut costs and secure supply, anode producers in China have been expanding their graphitization capacity since 2021,” the same anode producer said.

“Some of the expanded capacity started operation from the second half of 2022, resulting in falling graphitization costs and anode prices,” the above source added.

Over the coming years, there will be an increasing drive toward vertical integration and consolidation in the anode supply chain as producers will seek to capture more value and to be more resilient in periods of subdued price environment, Fastmarkets battery raw materials research analyst Georgi Georgiev said.

Supply chain integration

While supply chain integration has taken place among major synthetic anode producers in China over the past couple of years, integration among natural graphite producers and producers with a combined synthetic and natural anode capacity is also on the rise.

Aside from traditional major anode producers in China such as BTR, Shanshan, Zichen and Xiangfenghua, China’s anode industry is seeing new integrated anode producers including natural and synthetic graphite producer CarbonOne Group and natural anode producer CNBM Heilongjiang Graphite New Materials.

“Industry data showed that newly added anode capacity exceeded 4 million tonnes in 2022, up by 150% on a yearly basis. Therefore, cost control became one major concern for anode producers amid overcapacity,” a second anode producer said.

The integration trend could also be driven by the profits associated with added-value anode products compared with upstream raw materials like flake graphite and uncoated spherical graphite for natural graphite, according to one graphite producer outside China.

“The ongoing integration will continuously squeeze the profit margin for processing companies without value added products like purification for natural spherical graphite or plants with only graphitization process,” the same source added.

Market sources reported that the average price for natural anode materials could be around 39,000 yuan ($5,433) per tonne against $2,000-2,200 per tonne for uncoated spherical graphite.

In addition, an integrated operation helps guarantee the supply of raw materials and products, as well as improve individual company’s competitiveness, according to a third anode producer.

“We are now seeing a growing volume of processing capacity for anode production, including graphitization for synthetic graphite, spheroidization for natural graphite. But the supply of raw materials like flake graphite and petroleum coke should also be guaranteed for those anode producers without their own mining or refining facilities,” the same source added.

Another factor supporting the integration trend is the ability to control the supply and quality of material, because unlike other commodities graphite properties could significantly differ depending on the deposit origins, Fastmarkets’ Georgiev said.

“The associated complexity with producing anode material at scale and customized requirements of each OEM’s makes it preferable for battery producers to work with integrated suppliers,” Georgiev added.

In line with the trend of integration, CNBM Heilongjiang Graphite New Materials, a major flake graphite producer with a current capacity of 80,000 tonnes per year and expected capacity of 180,000 tpy by the end of 2024, is extending the supply chain to downstream anode production. It is targeting anode production capacity of 10,000 tpy, according to the company.

CarbonOne Group, with nine production areas throughout China, is integrating both natural and synthetic anode production in the provinces of Anhui, Heilongjiang, Shandong, Zhejiang and Yunan, targeting capacity of 200,000 tpy for natural anode materials and 150,000 tpy for synthetic anodes, according to one source close to the company.

Among the nine production areas, Qingdao Luowei New Materials has capacity of 50,000 tpy for spheroidization and 250,000 tpy for purification.

The large purification capacity at Luowei provides synergy for the group’s integrated anode production line considering that the purification capacity is a bottleneck for China’s spherical graphite production due to environmental concerns, company sales director Qingquan Li said.

Overseas expansion and geopolitical concerns

“The global lithium-ion battery industry will maintain long-term growth with demand in overseas markets such as Europe and America expected to increase,” Chen Wei, general manager of Putailai, a major anode producer, said at the company’s financial results meeting on November 17.

“The risks and opportunities in the anode industry are prominent. For companies without advantages in differentiated products, R&D technology and optimized cost structure will be eliminated in the next few years while those top producers with the overseas production capacity layout, as well as the above advantages, are expected to usher in a new round of industry opportunities,” Chen added.

Major anode producers in China have already set up factories in Europe and Indonesia. A total of 280,000 tpy of capacity has been announced by BTR in Indonesia, Shanshan in Finland and Putailai in Sweden.

The expansion to overseas markets could be driven by geopolitical concerns, according to industry participants.

“The majority of anode producers in China tend to go overseas setting up plants against the backdrop of the overcapacity in the domestic market and the policies in the US and Europe that tend to reduce the share of materials sourced from China,” Richard Song, CEO of Gallois Madagascar graphite, said.

The European Commission included synthetic graphite (the raw material for synthetic anodes) and aluminium to the list of strategic and critical raw materials outlined in the Critical Raw Materials Act (CRMA) on November 13.

The inclusion of synthetic graphite in the CRMA means Europe should recycle 25% and process 40% of its annual synthetic graphite needs by 2030. This also means that the reliance on a single country for synthetic graphite should be within 65% of its consumption.

“In addition, the Inflation Reduction Act (IRA) in the United States has already triggered investment in projects outside China from raw material producers to cell makers,” a graphite producer in Africa said.

Syrah Resources, an Australia-based graphite miner, signed agreements with lithium battery manufacturer Samsung SDI, multinational purified spherical graphite producer Graphex Technologies and US-based junior graphite anode producer Westwater Resources related to the supply of flake fines from its Balama site in Mozambique and anode materials from Syrah’s Vidalia facility in Louisiana, in the US in August.

Another graphite producer, NextSource, also signed a memorandum of understanding (MoU) with South Korean battery precursor producer Posco International at the start of September. The MoU envisages the supply of NextSource’s flake graphite and spherical graphite to Posco over a 10-year period.

But the anode industry might find itself in a stalemate with Chinese players looking for overseas expansion but facing geopolitical concerns, and Western anode producers lacking the know-how and experience to produce at the same scale that producers in China have developed over the last 15 years.

One way to solve this impasse could be through joint ventures, yet a lot of uncertainties remain whether this could be a viable way forward given the rising geopolitical risks, Fastmarkets analyst Georgiev concluded.

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