Argus White paper:

Getting graphite
prices right

Argus has launched new price assessments for ties downward spiral that started in late 2014, graphite prices
natural flake graphite to add to its existing coverage substantially declined and have failed to recover since then,
of the battery raw materials sector. In this white despite some wishful thinking by some market commentators
paper, we examine the less talked about part of the and industry participants.
lithium-ion battery and explain why a solid handle
on graphite pricing will be needed as the electric In recent months, graphite prices have improved and the
vehicle (EV) revolution gains pace. long-term fundamentals for the EV market remain promising
but as with any developing market, uncertainty remains. Here
It was Elon Musk who famously said in 2016 that: “Our cells we explain why a realistic understanding of graphite prices is
should be called Nickel-Graphite, because primarily the needed in the market and how Argus can help.
cathode is nickel and the anode side is graphite with silicon
oxide.” Graphite receives far less attention than other battery What type of graphite is used in batteries?
raw materials such as lithium or cobalt, but graphite is, by Graphite is not a straightforward commodity product, but
weight, the second largest component in lithium-ion batteries. rather comes in different forms and specifications. The two
Over half of the carbon anode is based on natural graphite, main forms are natural graphite, which is sourced directly
whereas lithium content makes up less than 10pc of the from mines, and synthetic graphite, which is made from
cathode, which means that graphite is a key component in the petroleum coke. In turn, there are three main types of natural
price of batteries. graphite: flake (>85pc carbon), amorphous (60-85pc carbon),
and vein (>90pc carbon).
After the graphite market became subject to an exploration
boom that started in 2011 on the back of forecasts for heavy Both natural and synthetic graphite are used for li-ion anode
demand to meet growth from the EV sector, the trend of material, but natural flake graphite remains the preferred
reported prices reached a peak in 2013-14. Around this time, a material with the highest carbon grades (94-97pc) considered
raft of new exploration projects — more than 70 in total — was best suited for use in batteries. It is this flake graphite that is
announced, partly encouraged by high reported prices and then upgraded to 99.9pc purity to make “spherical” graphite
over-bullish market sentiment. Following the global commodi- used in li-ion batteries. Purified natural flake graphite has a
higher crystalline structure and offers better electrical and
thermal conductivity than synthetic material, while synthetic
Following the global commodities down- material has a longer lifespan.
ward spiral that started in late 2014,
Size is also an important factor when it comes to natural
graphite prices substantially declined and graphite for batteries. Typically, only small and medium
have failed to recover since then, despite flake sizes or fines (with a mesh size of -100) are used in the
production of spherical graphite for battery production. Flake
some wishful thinking by some market
sizes that are larger than -100 mesh are not used.
commentators and industry participants.

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Argus White paper: Getting graphite prices right

Forecast for global alternative fuel vehicle registrations

Only 13pc of graphite demand is for batteries mn units
World demand for natural graphite in all batteries remains 40
very small, at around only 120,000t in 2016, accounting for North America Europe Asia-Pacific Other
35
just 13pc of total natural graphite demand. To put this in con-
text, the global graphite market amounted to around 2.45mn 30

t in 2016, of which synthetic graphite accounted for 61pc 25

(1.5mn t) and natural graphite accounted for 39pc (around
20
950,000t). Out of this natural graphite, flake material was
around 68pc (650,000t), amorphous 31pc (295,000t), and 15

vein 0.5pc (5,000t). 10

Global graphite market 2016
5

Vein (natural) Amorphous 0

5,000 (natural) 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
295,000

Should the battery market grow at these

Flake forecast rates, consumption of flake
(natural)
Synthetic 650,000 graphite for li-ion anode production has to
1,450,000 substantially increase.

Forecast lithium-ion battery market by application

GWh
450 Portable electronics
Steel: The main driver of demand 400 Automotive China
For now, graphite’s primary consumer remains the steel
350 Automotive other
industry. Steel mills account for over half (around 500,000t)
300 Industrial
of annual demand and use graphite in the production of
refractories, which are employed to line steel kilns, and as an 250 Other

additive, or “recarburiser”. In 2018, global steel production 200

provided good support for the natural graphite market, with 150
growth of more than 5pc compared with 2017, according to the 100
World Steel Association.
50

0
Looking ahead, demand from the steel industry is expected 2010 2017 2020 2025 2030
to remain flat given the maturity of this market. Demand for — Argus, Avicenne Energy
graphite from the lithium-ion battery market holds a lot more
growth opportunity and is set to pick up more speed once Should the battery market grow at these forecast rates,
much-anticipated EV demand really reaches a tipping point. consumption of flake graphite for li-ion anode production has
The question is when will this revolution really get going? to substantially increase. As shown in the chart opposite, the
overall market for li-ion batteries is expected to increase from
Argus’ EV forecast around 90GWh in 2017 to 145GWh in 2020, 215GWh in 2025
Forecasts for EV penetration vary from the more cautious and 385GWh in 2030, which would represent CAGRs of 17pc,
to the overly optimistic. According to the more conservative 8pc and 12pc, respectively. The EV sector becomes ever more
Argus transport model for all alternative fuel vehicles (AFVs) — dominant, increasing its market share from 45pc in 2017 to
almost exclusively electric and hybrid electric vehicles — total 51pc in 2020, 56pc in 2025 and nearly 65pc in 2030.
AFV registrations are forecast to increase from around 1.6mn
units in 2017 to 2.4mn units in 2020, 10.4mn units in 2030 and China dominates graphite supply
33.6mn units in 2040. Compound annual growth rates (CAGR) As with many other minerals, China dominates production
are 14.5pc for 2017-20, 16pc for 2020-25, 16pc for 2025-30, for graphite, accounting for 67pc of the world’s total in 2017.
13pc for 2030-35 and 11.5pc for 2035-40. As China continues to swiftly move up the global value chain

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 Argus White paper: Getting graphite prices right

In recent years, well reported environmental crackdowns on

China dominates production for graphite, illegal or polluting graphite operations in China have also
accounting for 67pc of the world’s total in added some uncertainty to the market, not to mention steadily
increasing production and labour costs. In addition to this,
2017.
China is exporting less and less 94pc small flake material, be-
cause most of it is used in the domestic refractory market or to
and focus on value-added exports, there is an expectation in produce high value-added products for the battery industry in
the industry that it is unlikely to remain a low-cost supplier South Korea and Japan.
of natural flake graphite of a consistent quality to the global
EV sector. As further evidence of this, China is now a major importer
of high-grade natural graphite, accounting for 14pc of natu-
Naturally, global buyers are also keen to diversify supply ral graphite imports in January-July 2018. China’s recorded
sources away from one country. This geopolitical dimension imports were 324,800t, worth $346.5mn and with a unit value
was underlined last year when graphite was listed among of $1,070/t. The other major importing countries were Japan
Chinese products targeted by the US for an initial 10pc tax. (14pc), the US (9pc) and Germany (9pc)
Although this tariff never materialised, it nevertheless high-
lighted the risk of relying on one country for world supply of Natural graphite production outside China
such a critical raw material. After China, the next largest producers of flake graphite in
2017 were India, with mine production of 150,000t, and Brazil
Already 70pc of natural graphite production in China is amor- with 95,000t, followed by Canada with 30,000t. At present, no
phous, and only 30pc flake. Most production is sourced from graphite produced in India or Brazil is used to produce anode
small to medium-sized mining operations dotted around the material.
provinces of Heilongjiang and Shandong. This also means that
consistency in supply is a problem, because each mine will Mozambique entered the graphite market in 2017. The coun-
have material with varying chemical compositions. Typically, try went from having no graphite exports to around 23,000t
Heilongjiang produces mostly fines, while Shandong produces with the start-up of Syrah Resources’ Balama mine. Syrah
a higher proportion of coarse flake sizes. is aiming to become the world’s largest producer outside
China. The company is targeting an increase in production at
Global imports of natural graphite by volume Balama to 350,000 t/yr.
'000 t
700 Other India Germany S Korea US Japan China After a slowdown in exploration activity in recent years,
Thousands

600
several junior mining companies continue to raise capital and
progress new projects to feasibility study and beyond in Aus-
500
tralia, Madagascar, Canada, Tanzania and Namibia, to name
400
a few. As with so many other commodity markets, depressed
300 prices in recent years have impacted the level of financing,
200 and junior mining companies overall remain poorly funded.
100
How is natural graphite priced?
0
2013 2014 2015 2016 2017 2018e Mined graphite ore is first beneficiated into graphite concen-
— GTIS trate (typically 90-95pc total graphitic carbon content) and
then sized and screened into various mesh sizes. For commer-
Global imports of natural graphite by unit value cial production, these sizes are: small/fine flake (-100 mesh);
$/t
medium flake (-80 mesh); large flake (+80 mesh); and jumbo
2,000 China Japan US S Korea Germany India Other
flake (+50 mesh).

1,500
Flake prices are then determined based on a range of factors
such as graphite content, flake size and impurity levels. Typi-
1,000
cally, coarse large flakes (+80 mesh) and XL flake (+50 mesh)
with a higher purity (94pc or higher carbon content) command
500
a premium price.

0 Like other illiquid markets such as lithium, the market price

2013 2014 2015 2016 2017 2018e
— GTIS
for graphite remains opaque. While price references exist,
these are mostly used just as a reference, and not yet in

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Argus White paper: Getting graphite prices right

Graphite flake prices

...up until now most reference prices have Graphite Flake 94% min fob China (LH scale)
$/t CNY/t
been based on a wide range of graphite 820
Graphite Flake 94% min ex-works China (RH scale)
4,700
qualities and this has made tying contracts 800
4,650

to a single index difficult to achieve. 4,600

780 4,550
4,500
760
4,450
contracts. Another factor is that up until now most reference 740
4,400
prices have been based on a wide range of graphite qualities 4,350
720
and this has made tying contracts to a single index difficult 4,300
to achieve. As a result, pricing is still negotiated bilaterally 700
4,250
between buyers and sellers. 680 4,200
1 Nov 2018 1 Dec 2018 1 Jan 2019
Natural graphite prices today
While the combination of tightening supply in China for high- Argus’ graphite prices
purity grades in small sizes, and promising EV growth are Against this backdrop, Argus has been working with the
supportive for graphite prices in the long term, average selling graphite industry to develop a relevant market reference for
prices in the market remain muted. The reality is that high- indexation purposes and to bring more transparency to the
growth markets such as li-ion batteries have not yet had a market in this new complex automotive environment. Argus
significant impact on demand and consumption. has identified 94pc as the most tradeable form of graphite.
Exact details of our new graphite assessments are as follows:
Prices have edged up in recent months because buyers have
been stockpiling graphite from China ahead of the winter, as fob China, $/t
many mines typically close for the season. Still, industry par- Grade: Carbon 94pc minimum (permissible range 94-97pc)
ticipants point out that this improvement comes off a low base. Mesh size: -100
Minimum lot size: 40t (two containers)
Prices for graphite flake 94pc fob China ($/t, -100 mesh) were
assessed by Argus at $680-780/t on 8 January 2019. To put ex-works China, yuan/t
this in context, during the exploration boom days of 2011-12, Grade: Carbon 94pc minimum (permissible range 94-97pc)
reported prices for graphite fines reached over $1,300/t with Mesh size: -100
large flake selling for up to $3,000/t in early 2012. Minimum lot size: 40t (two containers)

Given that China is by far the world’s largest producer, the ex-works China, ex-VAT ($/t)
Chinese domestic market naturally influences international Grade: Carbon 94pc minimum (permissible range 94-97pc)
prices. This also means that inland logistics costs and value- Mesh size: -100
added tax (VAT) — of 16pc — are reflected in export prices. Minimum lot size: 40t (two containers)
Argus assessed graphite flake 94pc graphite prices ex-works
China at 4,100-4,600 yuan/t on 8 January 2019. To better fa-
cilitate a comparison with the international market, Argus also Given that China is by far the world’s larg-
publishes an ex-works ex-VAT price.
est producer, the Chinese domestic market
What’s next for graphite prices? naturally influences international prices.
In the longer term, the continuing push toward EVs bodes well This also means that inland logistics costs
for natural graphite demand. While we are still waiting for the
and value-added tax (VAT) — of 16pc —
trend for EVs to really get going, there is a need for more trans-
parency around graphite prices. This is especially the case with are reflected in export prices.
large-scale industrial buyers of batteries, particularly automo-
tive original equipment manufacturers (OEMs), who require
more supply-chain and price transparency not only to manage How Argus prices graphite
risk, but also as they come under more scrutiny and compliance Argus uses a market-appropriate methodology to assess
from regulators and their own shareholders. Opaque market prices in each of the markets that it covers. Because all mar-
prices for critical raw materials make it virtually impossible to kets are unique, Argus designs a methodology specific to the
mitigate such risk, and volatile prices are a major concern. commodity, geography and timing under consideration.

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Argus White paper: Getting graphite prices right

Argus methodologies reflect the way markets trade and are Why Argus?
determined by industry conventions. We have ensured that
our methodology for graphite meets the needs of the market Argus Media is a specialist global commodity price report-
and is in line with industry practice through direct collabora- ing agency that has been covering markets for over 40 years.
tion with industry participants. The company’s early origins were in analysing oil and refined
products markets, but coverage now extends to a wide range
Argus price assessments are reliable indicators of commod- of energy commodities.
ity spot market values, free from distortion. Argus makes a
distinction between open market, arm’s-length trade and Argus assessments are used as the reference price in physical
internal transfer pricing or long-term contracts, which are not supply and derivative contracts. They are accepted as ac-
taken into account in assessing graphite prices. curate and reliable indicators of the real value of commodities
across many different markets including — crude, petroleum
Argus has decades of experience and a proven track record products, natural gas and LNG, petrochemicals, electricity,
in assessing prices in illiquid markets. We take a structured biomass, biofuels, fertilizers, metals and coal.
approach to assessing such markets. In the first instance, we
seek price information relating to verified spot transactions Our data is used by companies and governments around the
through a survey-based approach that taps into a wide net- world to index physical trade, and as benchmarks in financial
work of industry contacts across the supply chain. markets. With such extensive experience in energy markets,
and largely illiquid markets, Argus Media is uniquely placed
Every day, our price reporters canvas market participants to to provide the effective framework for establishing prices for
identify any movement in price. Our graphite price assess- graphite and other future energy materials.
ments are published biweekly, every Tuesday and Thursday,
in Argus Metals International, which also publishes commen-
tary relating to any price movement. For more information:

Our price reporters make every effort to verify information [email protected]

they receive with the wider marketplace through bilateral
meetings with key market participants, through email, and www.argusmedia.com/en/metals
by telephone. All data captured by our market reporters are
stored electronically, and regularly audited.
Argus also offers graphite (and other metals)
All our price assessments use best practice guidelines consulting services and industry leading conferences.
designed to comply with the principles set out by the Interna-
tional Organization of Securities Commission (Iosco) in 2012, For more information please visit:
and we engage PWC to review those policies and processes. www.argusmedia.com/en/industry-events?page=1
To view a copy of our full methodology, please click here.

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