Rising synthetic graphite costs may push battery makers to rely on natural material

Chinese battery makers are expected to consider increasing the proportion of natural graphite feedstock they use in anode material because of the fast-rising cost profile and availability issues affecting supplies of synthetic graphite

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The rising costs associated with the production of synthetic graphite in China are pushing local battery manufacturers to turn increasingly toward the use of natural graphite, and some market sources believe that this could trigger a fundamental evolution in the graphite anode feedstock sector.

Most anode technologies used by battery makers employ a blend of both natural-based spherical graphite and synthetic graphite, in varying percentages depending on the process and the producer.

The battery industry has tended to favor synthetic graphite in anodes, due to its higher purity and controlled specifications. It offers a longer lifespan and a faster charge turnaround. On the other hand, synthetic production costs are higher than those for natural graphite-based spherical material. Natural graphite has a lower cost profile (Fastmarkets’ research team estimates about half the cost of synthetic) and can offer a higher capacity.

Market participants in conversation with Fastmarkets unanimously consider that the current market for anode material is dominated by synthetic graphite. According to sources in China, synthetic graphite accounts for almost 80% of the local anode market share, with natural graphite taking up just over 20%.

Other estimates suggest that natural graphite may take closer to one-quarter of the market, or slightly more. In either case, synthetic material has so far been the dominant feedstock.

But the surging production costs related to graphitization of synthetic material in China over the past year have pushed battery makers to consider a shift in strategy toward a higher proportion of natural graphite.

Graphitization – producing synthetic graphite from carbon-rich, oil-derived feedstock raw materials – is an energy-intensive process. In China, graphitization capacity has been mainly located in Inner Mongolia, a province which has some of the lowest energy costs in the country and where other high-energy metal producers, such as ferro-chrome smelters, are based.

Sources in the country estimate that the province has about half of the national graphitization capacity. But Inner Mongolia was the first in the firing line when the 2021 energy crisis unfolded.

After dual controls were put in place on the amount and intensity of energy consumption from the end of 2020, coal prices in China soared over the following year due to reduced imports from Australia, as well as high internal demand when the country’s post-Covid economy began to fire on all cylinders once more.

This played out for the whole of 2021, but in the third and fourth quarters the energy crunch spread to most of the country and could not be contained to remote areas. Energy costs rocketed, while availability tumbled. Local governments imposed rolling blackouts for energy-intensive industries.

For synthetic graphite, this led to reduced output and sudden, unpredictable cost increases.

Because many areas have closed down their industrial operations for the winter months, in line with government guidelines to contain air pollution, the worst of the energy shortage has receded. Some of the highest costs have come down so far in January and are expected to ease further in the coming months.

But industry observers are well aware that the fundamentals driving energy prices higher have not gone away, and that synthetic graphite could come under pressure again. This creates new concerns for future supply planning, costs and availability.

“Energy consumption controls in the past two years have interrupted capacity significantly, and increased downstream consumers’ awareness of expanding supply chains to natural graphite, given its accessibility and lower exposure to energy controls,” a battery manufacturer in China said.

Producing spherical graphite out of natural mined flake material requires less energy than the Acheson furnace process employed in synthetic graphitization.

Market prices of spherical graphite have also increased in the past year, owing to higher demand, increased logistics and other costs.

Fastmarkets’ latest assessment of the price for graphite, spherical, 99.95% C, 15 microns, fob China, was $3,100-3,300 per tonne on January 6, 2022, up by 24.27% from $2,350-2,800 per tonne on July 1, 2021.

Nevertheless, the China energy crunch has exacerbated what was an already steep price differential between synthetic and natural graphite material.

“Energy consumption in synthetic graphite production far outpaces energy demands for spherical graphite production, leaving synthetic graphite producers more vulnerable to soaring costs, reduced energy availability, and forced closures,” according to Amy Bennett, principal consultant on graphite for Fastmarkets Metal Bulletin Research.

While the focus on managing energy consumption intensifies, with China’s government seeking to implement its strategy to reduce carbon emissions in pursuit of net-zero climate targets, it is industries such as synthetic graphite that will bear the brunt of new restrictions. This will create supply headaches for battery makers but also sustainability-related concerns for downstream users, sources have said.

“The synthetic market is much more exposed to shutdowns in China than [the market for] natural [material],” one North America-based graphite supplier source said. “It is an obvious target for power-rationing. It also has much greater emissions issues. Most Chinese power is coal-based, so it’s a double whammy for western buyers concerned with ESG [environmental, social, governance] issues.”

Besides, it would be difficult for new synthetic operations to be added in China. The country’s latest policy changes have set a cap on energy usage imposed by local authorities, and require additional approval for any extra energy needs, a source with an anode manufacturer in China said.

China’s National Development & Reform Committee (NDRC) issued a document in September 2021 titled “Improve the dual control system of energy consumption intensity and total amount”, which said that central government approval is required for any new capacity with energy requirements for more than the equivalent of 50,000 tonnes per year of standard coal. Sources said that this is equivalent to graphitization operations handling around 13,000 tpy of output.

All this may prompt battery makers to increase the share of natural-based material in their graphite anode products, at the expense of synthetic material.

Other technical reasons may support this change. The development of silicon as a component in anodes would also favor natural graphite, because this performs better with silicon in the anode than its synthetic counterpart.

Adjusting sourcing to include a higher share of natural graphite may put manufacturers on a path that will allow them to react better to future technology changes, as well as countering the unfavorable cost and availability issues that affect synthetic feedstock.

“We expect to see consumers shifting to the more readily available graphite product or competitively-priced product,” Fastmarkets’ Bennett said, “which is where natural graphite is poised to make gains in market share.”

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