Refractory grade graphite: Seeking Chinese supply diversification

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A look at the supply situation natural flake graphite used in refractories. Also discussed is: China's role, prices, 5 points for the future.

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Refractory grade graphite: Seeking Chinese supply diversification

  1. 1. Refractory-grade graphite in 2013 Simon Moores, UNITECR 2013, Victoria, Canada Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com www.indmin.com/GraphiteAnalysis
  2. 2. 1. The situation 2. Production 3. China 4. Exploration boom 5. Prices 6. The future Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com
  3. 3. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com 1. The situation • The world has become over-reliant on good quality, low cost flake graphite from China • Some major refractory producers are seeking supply diversification, reduce dependence on China • No new mines outside China since the 1980s • New raw material competition on horizon • Steady supply from China being threatened • Long term, stable prices have not existed for 5 years
  4. 4. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com Where is natural flake graphite mined?
  5. 5. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com Where is natural flake graphite consumed? 2012 Refractories, foundries and crucibles - 39% Batteries - 9% Metallurgy - 28% Lubricants - 9% Part & components - 10% Other - 5%
  6. 6. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com #1 China Shandong, China • Dominates all forms of natural graphite production • Flake, amorphous and spherical • 61% of world’s flake graphite in 2012 • 89% of world’s amorphous graphite in 2012 • Main producing regions for flake • Heilongjiang • Shandong • Inner Mongolia • Total flake output in 2012: 450-480,000 tpa • No active restrictions on graphite supply • Graphite listed as a strategic mineral in China, consolidation under discussion
  7. 7. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com #1 China Shandong, China China’s graphite production rise: China’s % of global graphite output 1973 - 15% 1983 - 33% 1993 - 50% 2003 - 84% 2013 - 78%
  8. 8. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com #2 Brazil • 23% of world’s flake graphite output • Nacional de Grafite (right) – world’s largest non- Chinese producer by far • Supplier of large and medium flake • Has been operating at capacity for the last 3 years • Expensive for Brazilian producers to export, domestic focus (25:75) • 1 new graphite mine project Minas Gerais, Brazil
  9. 9. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com #2 Brazil • Offers the most immediate potential for supply increase • 2 operating flake producers = total capacity 102,000 tpa • 1 mothballed flake graphite mine • Strong domestic market and export potential to North America which relies on China and to a lesser extent Canada and Europe • 75% of production is domestically consumed at present
  10. 10. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com #3 India • 7% of world’s flake graphite output • Production hugely over estimated for years – 140,000 tpa, in reality 25-30,000 tpa • Industry very fragmented • No mines larger than 7,000 tpa • Questions over how much flake is mined in India versus how much imported from China and reprocessed Jarkhand, India
  11. 11. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com #3 India • Consolidation needed to be a major global graphite exporter • No exports – strong internal demand • Imports from China • Poor infrastructure major barrier to development
  12. 12. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com #4 Canada • 3% of world’s flake graphite output • 2 operating mines, 1 major mine in Quebec = Lac des Illes • 15,000 tpa, predominately medium flake graphite • Moved to a new mining pit = production good until 2015 • Consistent producer to global market for 20+ years • Supplies North America and Europe
  13. 13. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com #4 Canada • Mining suspended in 2013 • Slow market conditions, operating from inventory • Large flake graphite questions Exploration • Post-boom era • Serious graphite exploration companies now coming to the fore • Canada home to some major global projects • Companies present: Syrah Resources (booth), Flinders Resources
  14. 14. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com #5 Norway • 2% of flake graphite output • Underground mine in Skaland, north Norway • Europe’s only miner • No significant expansions are expected in the medium term Skaland, Norway
  15. 15. Resource management • Environmental reasons commonly given • But…China no longer wants to be the bread basket for the rest of the world • Exports of raw materials at the expense of resources/environment no longer a viable long term business • The rare earths excuse The China factor: production and policy Macro changes in China:
  16. 16. Pollution controls • Blanket ban on all round/downdraft kilns, Shanxi • Heavily polluting, inefficient • Had to covert rotary kilns or go bust • 75% of producers wiped out overnight • Prices up 70% 2007 – Refractory-grade bauxite 2009 – Flake Graphite, Inner Mongolia 2011 – Amorphous Graphite, Hunan • Mine closures of older operations • Pollution and demand grounds • Government-forced consolidation in Lutang • Coal and amorphous graphite industries • 220 mines to 30 on pollution and resource protection grounds 2012 – Flake Graphite, Jixi, Heilongjiang
  17. 17. Developing a value-added economy • Exports of raw materials at the expense of resources/environment no longer viable • Development of the production value-chain is critical The 7 key industries China wants to develop 1. New energy 2. New energy automotive 3. New materials 4. Energy saving and environmental protection 5. Biological science 6. New information industry 7. High-end equipment manufacturing
  18. 18. 2. Macro changes to mining in China High quality, lower cost manufacturing Consolidation – majority of production by the fewest companies China wants to compete on quality and quantity Output of top ten steel producers - % of total capacity
  19. 19. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com The China factor: production and policy Graphite compared to other raw materials The Kooroshy Commodity Chart Source: Resources Futures, Chatham House, London
  20. 20. Exports to imports for raw materials • 2000 average import dependency: 15% • 2011 average import dependency: 40% 0% 10% 20% 30% 40% 50% 60% 70% 80% Bauxite Copper Iron ore Coking coal Average 2000 2011 China’s dependency on imported raw materials Note: China is a net exporter of natural graphite
  21. 21. The medium term future for China • In need of modernisation • Increased focus on more efficient graphite mining • Consolidation in flake will happen = when? • High potential for export supply restrictions in favour of value-added products • Net exporter of graphite for foreseeable future • China is industry leading with commercial spherical graphite • China will compete in other advanced battery materials
  22. 22. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com Exploration boom
  23. 23. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com Exploration boom 2010: 5 exploration companies 2011: 60 exploration companies 2012: 125 listed graphite exploration companies* *Tech Metals Research Graphite Production & Exploration Map: Free at UNITECR 2013
  24. 24. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com Prices Volatility in commodity markets Source: Resources Futures, Chatham House, London
  25. 25. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com Prices
  26. 26. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com Prices 2009-2013 – the era of volatility 2009 2010 2011 2012 2013 • Producers take capacity off-line in response to global economic crisis • Destocking cycle ensues • Markets rebound stronger than anticipated • Suppliers cannot react quick enough, not enough inventory to satisfy demand • Supply shortage • Price spike • Flake graphite price reaches all time highs • +80 mesh, 94-97% C, CIF, Europe = $2,500/tonne • Situation + graphite’s green energy uses + no viable substitutes = boom in new exploration • H2 2012: Demand begins to slow • H1 2013: Prices plummet as demand stagnates • China significantly struggles for the first time
  27. 27. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com Price performance in 2013 Price trend in 2013: 2011: all time highs Large flake +80 mesh, 94-97% C, flake graphite, CIF, Europe • 2000-2009 av: : $823/tonne • September 2013: $1,350/tonne Source: Industrial Minerals Data: Graphite price database - new Indmin.com/GraphitePrices
  28. 28. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com Price performance in 2013 Medium flake -100 mesh, 94-97% C, CIF, Europe • 2000-2009 av: $650/tonne • September 2013: $1,050/tonne Source: Industrial Minerals Data: Graphite price database - new Indmin.com/GraphitePrices
  29. 29. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com What does the future hold? • China has the ability, production power, resources to continue supplying the world like is has done so since 1980s • Customer perspective is changing, however • Supply security is high on the agenda = from the unknown of Chinese policy (the rare earths situation) • Wide agreement graphite has been neglected for a generation = major interest in exploration scene • Price volatility seen over last 5 years will continue as a result of changing buying patterns, not necessarily through a demand squeeze
  30. 30. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com What does the future hold? My 5-year expectations in 5 points: 1. China to remain #1, supply restrictions to increase o Active: export quotas (magnesia, fluorspar, rare earths), tax increases = less likely o Passive: Environmental crackdown (wasteful mines, polluting plants, uses of certain acids), consolidation = more likely 2. Supply to increase outside of China o Expansions at existing mines: Brazil, Canada o New mines: Africa, Canada 3. Supply chain integration o Refractory producers especially, buy far largest volume consumers of flake o Users to buy or have a stake in mines o A return to pre-1985 mentality
  31. 31. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com What does the future hold? 4. Large flake graphite production increase o > 80 mesh, 94% C o Through new mines outside of China = opportunity o The emergence of a new category = Jumbo flake, > 48 mesh 5. Raw material competition o Large flake graphite competition from batteries o > 80 mesh and larger most suitable for spherical graphite o New market which didn’t exist pre-2008 My 5-year expectations in 5 points:
  32. 32. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com Mike O’Driscoll, Head of Research Industrial Minerals Research Email: modriscoll@indmin.com Emma Hughes Deputy Editor Industrial Minerals Email: ehughes@indmin.com Ben Ash Advertising & Sponsorship Industrial Minerals Email: bash@indmin.com
  33. 33. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com Graphite related products: Industrial Minerals Data | Graphite = new • www.indmin.com/GraphiteAnalysis Natural Graphite Report 2012-2016 Supply, demand, price forecast • Discounts at UNITECR, enquire at booth Natural Graphite Global Map 2013/2014 Production, Confirmed Resources, Trade Flows • Published in 3 weeks, last advertising positions remaining
  34. 34. Simon Moores, Manager, Industrial Minerals Data – Connect smoores@indmin.com Thank you smoores@indmin.com

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