Agoracom Blog

Graphite Supply – All Set to Go the Way of Rare Earths?

Posted by AGORACOM-JC at 10:53 AM on Monday, June 25th, 2012

MetalMiner welcomes guest contributor Jaychandran Pradeep, a Chennai-based senior research analyst in Industry Durables for Beroe Consulting India Pvt Ltd. Pradeep tracks the markets of various industrial durable products and their associated raw materials and provides strategic reports, which assist Beroe’s Fortune 500 clients in effective procurement. Beroe specializes in providing procurement intelligence and advisories for a broad swath of industries.

Graphite, as many school-aged kids could tell us, is a mineral used to make pencil tips. However, this mineral also finds applications in a broad array of industries ranging from steelmaking, batteries and manufacturing of various industry durables to neutron moderators used in nuclear reactors, making it extremely important to ensure its supply for steady industrial growth.

Over recent years, graphite has attracted considerable amounts of attention, with good reason, due to the skewed nature of its supply base. Similar to many other crucial minerals and metals, China holds an iron grip over the global graphite supply.


A Critical Raw Material

The US State Department, British Geological Survey and The European Commission have all declared graphite to be a critical raw material, due to its importance in crucial industries like steel, batteries (lithium-ion), and nuclear reactors.

Lithium-ion batteries, widely used in electronics like cell phones, power tools and notebook computers contain almost twenty times more graphite than lithium. According to a Canaccord research report,

“Annual flake graphite production will have to increase by a factor of six by 2020 to meet incremental lithium carbonate requirements for batteries.”

The US does not produce natural graphite domestically and is almost completely dependent on imports for graphite supply. More than 50 percent of the US’ graphite requirements is met by imports from China, which is a cause for concern for the US government. Many governments across the world are very intent on development of fuel cells through large-scale funding. Graphite is a primary raw material used in the bipolar plates of these fuel cells.

A US Geological Survey report states, “large-scale fuel-cell applications are being developed that could consume as much graphite as all other uses combined.”

Parallel with Rare Earth Metals

Everyone knows how the rare earths story played out, starting with China (which controls over 97 percent of world’s supply) introducing export quotas and higher taxes for export of rare earths and the eventual opposition by major consumers like the US, Japan and Europe.

In the case of rare earths, when China introduced controls on exports, the world suddenly realized how vulnerable and dependent it was on China for consistent supply. Industry experts pointed out that going forward, China intends to become a net exporter of finished products rather than a mere supplier of raw materials to the world, which was the primary objective behind the export restrictions.

Industry experts, and their views on China’s agenda of moving up the value chain of critical minerals and metals, were apparently right. Now, the Chinese government has shifted its sights on another mineral, graphite, for which it controls over 70 percent of world production.

Similar to rare earths, China has imposed a 20% export duty and 17% value-added tax on exports of graphite. Currently there are no distinct export quotas on graphite like rare earths; however, industry participants believe that it would not be surprising if China were to impose such export quotas in the short term.

More on the parallels of the graphite and rare earth markets, including detailed trend graphs and price outlooks, coming up in Part Two.

–J. Pradeep


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