Natural flake graphite market still affected by supply chain issues

The natural flake graphite market continued to face availability issues because of uncertainties created by factors such as China’s anti-pollution efforts, Covid-19 outbreaks and global logistics disruptions

Tightening availability and uncertain output expectations, as well as delayed shipments, meant that flake graphite prices rose on both an fob China and a cif Europe basis to more-than-three-year highs during the winter season of 2021-22.

Fastmarkets’ price assessment for graphite flake 94% C, -100 mesh, fob China, has increased by 38.33% since last November to $830 per tonne on Thursday March 24, the highest in the three-and-a-half years since Fastmarkets began to assess it.

The corresponding price assessment for graphite flake 94% C, -100 mesh, cif Europe, has moved up by 18.79% since last November to $885 per tonne on March 24, also the highest in three-and-a-half years.

“Producers were just coming out of their winter shutdowns and the Chinese holiday [for the lunar new year], and then faced an onslaught of orders that I don’t think they expected would be quite so large - and now [there is] the return of the [Covid-19] virus. All these [factors] combined to overwhelm some of the mines and cause the price increase,” a distributor source said.

“The insecurity [in global trade] caused by [Russia’s] invasion of Ukraine cannot be understated in its effect on this market, as well as many others,” the same source added.

Seasonal factors, anti-pollution efforts

In principle, the traditional winter stoppages in China might not cause supply concerns, given that downstream buyers would restock before the seasonal halt and suppliers sell their inventory during the winter season.

But limitations on power supplies and environmental checks during the second half of last year led to dwindling inventory and less buying appetite among downstream buyers, especially in the refractories sector, according to a second source.

Meanwhile, the widening use of flake fines in anode material over the past two years has sparked increasing concerns about a supply shortage.

“Yield rates of spherical graphite with flake fines from Luobei county could be higher than those from Jixi county,” a third source told Fastmarkets. “So operational stoppages in Luobei matter a lot to the spherical market.”

Spherical graphite is produced using flake fines as feedstock. Flake fines produced in Luobei county are of higher grades and easier to purify further when making spherical graphite, according to industry sources.

Operations in Luobei were halted last December due to the cold weather and environmental regulations, with an uncertain restart schedule.

The best scenario would be that some operations in Luobei would restart in the next month, although the chances of a total recovery could be low due to the absence of environmental qualifications, according to the second source.

“The market might be still affected by shortages given that the operational restarts might not add to the flake supply, since local flake graphite producers tend to save it for their [own] spherical graphite production,” the same source added.

Fastmarkets’ price assessment for graphite spherical 99.95% C, 15 microns, fob China, was $3,500-3,800 on March 24, up by 26.47% from last November.

Logistics

Tight supply and extremely high freight costs from China have led some consumers to switch to African sources of material.

While the global logistical problems that drove up prices in 2021 have eased recently for market participants in Europe, primarily buying from China, there have also been logistical problems on routes from Africa to Europe, according to some market participants.

“There are lots of issues developing in exports from Africa, which has become our biggest supplier,” a Europe-based consumer said. “Lead times have really jumped. It has become a real challenge to ship material [because of] delays - and shippers have been skipping ports.”

Logistical restrictions continued to limit the volumes of exports from several sources.

“Issues of container availability continue to plague the industry when it comes to moving material out of the major graphite-generating countries,” a graphite-sector source said.

Syrah Resources, which operates the Balama project in Mozambique, reported rising demand and sales prices over the fourth quarter of 2021. But its flake graphite output was 13,000 tonnes, down by 48% quarter on quarter, because of the limited availability of containers.

Ukraine war adds to pressure

There have been direct as well as indirect implications for the graphite industry arising from the war in Ukraine.

Production by Zavalievsky Graphite (ZG) in Ukraine has been halted since the Russian invasion on February 24, Volt Resources reported on March 17. Volt bought a 70% controlling interest in ZG in 2021.

Volt had planned to restore production at Zavalievsky to its nameplate capacity of 30,000 tonnes per year in 2022, Volt managing director Trevor Matthews told Fastmarkets last year.

Zavalievsky would like to restart activity from mid-April, a company representative told Fastmarkets, but this will depend on the situation in the country.

Other market participants in Europe reported that import volumes from Russian graphite producers, such as Ural Graphite, would probably fall.

“Because it has a good customer base in Russia, there would only be a problem for Ural Graphite if demand for its material within Russia falls, or its exports are halted,” a consumer in Europe said. “There will certainly be an effect, which will mean less material offered into an industry with increasing demand.”

The presence of Ural Graphite is limited in some parts of Europe, however, according to the same source.

“The effect [of the Russia-Ukraine war] on output might be around 20,000-30,000 tonnes. There could be a demand shift from Russia/Ukraine to Africa, with consumers reluctant to buy from related regions,” the second source told Fastmarkets.

Covid-19 outbreak

Furthermore, industry participants expressed concern about China’s current Covid-19 outbreak, which might interrupt operations and land transport.

Earlier this month, Laixi county in Qingdao city had a resurgence in the number of Covid-19 cases, affecting spherical graphite operations and land transport in the region.

While local Covid-19-related controls were easing with falling case numbers in Laixi county, the resurgence of Covid-19 in Liaoning province was adding to the interruptions to land transport for the graphite trade, given that Yingkou and Dalian, both in Liaoning, are major export outlets for graphite from Heilongjiang province, according to sources.

“Operations in Yingkou have been suspended… for about ten days so far. It’s difficult to ship any material out at the moment,” another graphite sector source said.

China reported 1,301 new locally transmitted Covid-19 cases on March 24, according to the country’s National Health Commission.

Demand amid availability issues

Concern about limited availability of material has had its own effect on demand, with consumers seeking to secure material, according to sources.

“Supply-side issues have caused a ripple effect outside of China, with people scrambling to fill their supply pipelines,” another source said.

Meanwhile, while the international markets gradually recover from the effects of Covid-19, demand for flake graphite was also increasing, another source said, especially in the new energy sector.

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