RESEARCH: Chinese graphite producers face rising power costs, higher prices in Q4 2021

Fastmarkets sees upside risk to Chinese graphite prices in the fourth quarter of 2021, largely reflecting rising electricity costs and reduced power supply, as well as insufficient inventories and inadequate availability of feedstock for spherical graphite processing.

High power costs and limits on energy consumption in China may make it increasingly difficult for graphite producers to stockpile material to serve customers during the winter months. Graphite producers typically halt production from mid-November/December until March.

Prohibitively cold temperatures in northern China’s Heilongjiang province, where the majority of natural flake graphite production is centered, typically prompt extended graphite production stoppages, with producers supplying customers from inventory during the outage period.

If natural graphite producers in Heilongjiang are unable to produce sufficient volumes of material for their stockpiles, given power shortages and elevated electricity costs, we may see natural graphite shortages emerge in the coming months, lending upward support to prices.

The manufacturing process for synthetic graphite is highly power-intensive, with the Chinese power issues also potentially affecting both synthetic graphite production and costs in the coming months.

Synthetic graphite is produced from calcined petroleum coke, needle coke or coal tar pitch, with the process requiring incredibly high temperatures and demanding energy consumption of more than 12,000kWh per tonne.

A large share of China’s synthetic graphite capacity is located in Inner Mongolia, where numerous power-intensive industries are based, due to traditionally competitive power costs and ample availability. But power supplies and costs are being negatively affected in this region as well.

With Chinese electric-vehicle battery producers typically consuming a blend of natural flake and synthetic graphite in anode production, we would expect to see consumers shifting to the more readily available product or competitively-priced product.

But with supplies of both natural flake and synthetic graphite poised for reduced production at higher costs, we expect tightness across the graphite sector to lead to higher prices during the October-December quarter of 2021.