Feature article from Benchmark Mineral Intelligence's quarterly journal: Anode demand in China is surging as Beijing turns to lithium ion powered electric buses and cars to solve its air quality problem, a situation now at critical

1. UPSTREAM | NEWS ANALYSIS
14 | JUNE 2016 BENCHMARK www.benchmarkminerals.com
Anode demand in China is surging as Beijing turns to lithium ion powered electric buses and
cars to solve its air quality problem, a situation now at critical
Simon Moores / @sdmoores
Demand for graphite (carbon) used
as anode material in lithium ion
batteries is set to increase by over
200% in the next four years as global
cell production surges on the back
of maturing pure electric vehicle (EV)
demand and the inception of the
energy storage in the utility sector.
China’s concern over the air quality
of its cities, especially its capital, is
forcing the country to act rapidly
to solve an issue that has reached a
critical level. In 2015, Beijing issued
its first ever air pollution“red alert”
forcing the capital’s schools to close
and outdoor work to come to a halt.
The country sees EVs as the most
immediate solution to the problem,
particularly for vehicles used in
city centres such as pure electric
buses and cars. Beijing already
issues significant subsidies for e-bus
production, a situation that was a
major contributor to the lithium price
spike.
But with a wide range of pure
electric buses and cars scheduled to
hit the Chinese market in the next
4 years, the implications for battery
raw material demand are significant,
especially for the little known anode
market.
New data from Benchmark
Mineral Intelligence forecasts the
anode market – which is nearly
exclusively served by naturally
sourced spherical graphite and
synthetically produced graphite – to
increase from 80,000 tpa in 2015 to at
least 250,000 tpa by the end of 2020
while the market could be as large
as 400,000 tpa in the most bullish of
cases with no supply restrictions.
Taking the most conservative
case, Benchmark estimates that
over 360,000 tonnes of medium
flake graphite will be needed as a
feedstock source for the spherical
material by 2020. This is nearly a
doubling of the flake concentrate
market in 2015 should the natural-
to-synthetic demand proportions
remain the same in 2020.
At present, China produces 100% of
the world’s spherical graphite which
is predominately produced from flake
sourced from mines in Heilongjiang
province in the country’s north-east,
but there have been a number of new
companies entering the scene looking
to create new spherical plants outside
of China.
The most significant development
to date has been Syrah Resources’
Balama Project in Mozambique. The
fully funded mine will begin flake
graphite production in Q2 2017, but
the company is positioning itself
to serve the burgeoning global
anode market with a spherical
plant in Louisiana, US, and recently
announced a 50,000 tpa coated
spherical supply agreement last
month with Japanese trader
Marubeni Corp.
“[The deal] provides an insight into
the demand for spherical graphite
currently required by Korean and
Japanese battery producers… This
should also be viewed as validation
for the use of natural graphite in
the anode industry,”Managing
Director, Tolga Kumova, explained to
Benchmark in an interview.
“It is also important to understand
that this 50,000 tpa spherical off take
is for Japanese and Korean battery
producers. Syrah will also look to
service the explosive demand being
witnessed in the Chinese market,”he
added.
Battery grade graphite shortage on
horizon as demand rockets
Beijing, China,
December 2015:
Increasing air quality
concerns is forcing
adoption of electric
buses and cars in the
country
Published in Benchmark Magazine Q2 2016

2. BENCHMARK JUNE 2016 | 15www.benchmarkminerals.com
▲
BATTERY GRAPHITE
GRAPHITE: A TWO TIER MARKET - PRICES CHANGES 2014 vs 2016 (% CHANGE)
-40% -30% -20% -10% 0% 10% 20%
Source: Benchmark Mineral Intelligence
Demand for anode material
has been rising significantly. Last
year, the world’s spherical graphite
output was 52,000 tpa rising from
37,000 tpa the year before. China
has also enacted spherical graphite
expansions over the last 12 months
in anticipation of the further demand
increases.
In another example, Alabama
Graphite are developing a US-
based spherical plant. The project is
targeting a start-up capacity of 5,000
tpa of coated spherical graphite
rising to 15,000 tpa to meet domestic
US demand.
The company will supply the
feedstock flake by restarting in Coosa
County, Alabama while the spherical
plant is being planned for Rockford,
30km away.
“We will produce two products for
the US lithium-ion battery market
— namely, coated spherical purified
graphite for lithium-ion batteries
and purified micronized graphite
(PMG) [initially] for alkaline batteries
and composites,”President and
CEO, Donald Baxter explained to
Benchmark.
“[Our coated spherical graphite
material] was proven suitable
for lithium-ion battery use, and
it performed better than costlier
and environmentally questionable
synthetic graphite.”
“Primary and secondary
processing plants will produce 5,000
tonnes of specialty high-purity
graphite products annually, ramping
up to 15,000 tonnes annually in year
seven,”he added.
The company is aiming to be a
US based supplier of battery grade
material and is first looking at serving
specialist battery markets.
“Of the American-based EV and
stationary-battery manufacturers
to potentially address, the most
exciting for us is the US government
and defence sector. For example,
U.S. Department of Defense (DoD)
contractors are legally mandated
to source their input materials from
the US whenever and wherever
possible — and there are numerous
such as lithium titante, silicon and
tin used in very small amounts in
different technologies and testing of
new anode formulas.
Analysing the consumption trends
over the last 10 years, there is little
doubt that battery consumers prefer
naturally sourced graphite which is
much lower cost to produce and has
a lower environmental footprint than
synthetic graphite.
However, consistency of supply
remains a problem for the material
as the feedstock flake graphite is
sourced from multiple mines in
China, each of which have different
raw material‘signatures’– impurities
that vary from mine to mine.
This makes it difficult for the end
consumer to adapt to the changing
raw material qualities.
With synthetic graphite, as it is
man made from lower quality carbon
raw materials such as petroleum
coke and coal tar pitch, producers
can offer a more consistent product
albeit at a higher price, which can
be up to three times that of coated,
spherical graphite.
Synthetic graphite primarily
supplies the steel industry with
anode rods used to melt steel scrap.
These anodes, however, are very
different to the lithium ion battery
anodes in high demand.
American Lithium-ion battery
solutions providers for the DoD,”
Baxter explained.
The developments in the defence
sector are just one example of
surging global demand that is
being underpinned by major
expansions in the lithium ion
battery industry that are underway
worldwide as the sector matures
from megawatt plants to gigawatt
scale operations.
In Canada, an alliance of four
graphite development companies –
Elcora Advanced Materials, Northern
Graphite, Nouveau Monde Mining
Enterprises, and Metals of Africa –
have partnered with Coulometrics to
jointly acquire a spherical graphite
mill with the goal of producing
coated material“end to end in North
America”.
The alliance is at an early stage
and is seeking to have its material
fully qualified by lithium ion battery
producers.
Benchmark is tracking at least 12
lithium ion megafactories worldwide,
seven of which are located in China
and two in the US. By far the largest
plant under construction is Tesla
Motors’Gigafactory 1 in Nevada – a
$5bn investment set to reach its
35GWh cell capacity by 2020.
However, nearly 70% of new
lithium ion battery demand for
raw materials will be coming from
China as the country’s major cell
manufacturers, such as ATL and
Lishen, expand their operations in a
race to become the world’s lowest
cost producer.
Investments in new lithium ion
battery capacity out to 2020 are in
excess of $15bn and rising according
to Benchmark data.
This does not take into account the
rumoured lithium ion megafactory
being planned by Volkswagen AG
(VW) which is expected to cost
$11bn and be roughly twice the size
of Tesla’s Gigafactory.
Should this rumour be
substantiated in anyway byVW in
the coming months, committed
investments into expanding lithium
ion battery capacity will rise well
above $20bn over the next four years.
This is set to have a significant
impact on demand for graphite
anode material as cell manufacturers
seek to lock up long term supplies of
the material.
Natural or synthetic?
Today, 65% of all battery anode
material is sourced from natural
spherical graphite, 33% from
synthetic graphite material and the
remaining 2% from other alternatives
Uncoated spherical
Expandable
Most severe
price declines
on volume
grades
Purified
Micronised
Extra-larged flake
Large flake
Medium flake
Small flake
Softer landing
for value added
grades, with
some price
rises
Published in Benchmark Magazine Q2 2016

3. UPSTREAM | NEWS ANALYSIS
16 | MARCH 2016 BENCHMARK www.benchmarkminerals.com
▲
SPHERICAL GRAPHITE SUPPLY CHAIN“Synthetic graphite faces a more
complex problem to meet the
growing demand,”explained Ontario
Graphite CEO and former SGL vice
president of Americas, Tom Burkett.
“Increases in capacity will require
significant investment to meet
the demand. As an example, SGL
invested over €250m ($277m) to
install an electrode plant in Malaysia”
Burkett told Benchmark in an
interview.
“This plant has an annual capacity
of 40-50,000 tonnes of synthetic
graphite. Using this as a single point
guide, investment to install 100,000
tonnes of new capacity in synthetic
anode materials could require an
investment of €400-500m ($443-
554m),”he added.
Burkett also explained that
converting an anode plant into a
speciality plant for batteries is not a
straight forward task. In one example
given, a major synthetic graphite
producer spent $50m attempting
to covert its steel anode plant into
a speciality operation. The plan did
not work and it resulted in a $50m
write-off.
While synthetic graphite
challenges appear greater than
natural, it is important to note that
synthetic still commands a third
of the anode market and provides
consistent, higher quality material
to the market. Something natural
graphite has struggled to do.
In Q2 synthetic expansion, Japan’s
SDK has increased its battery anode
production capacity from 1,000 to
1,500 tpa showing rising demand for
all battery anode materials regardless
of provenance.
Prices to follow lithium?
While lithium prices are experiencing
their strongest ever surge, graphite
has lagged behind.
Flake graphite – the feedstock
source for spherical graphite – is
seeing limited upward pressure
after being weighed down by a lack
of demand in the steel sector, its
primary market.
However, new price data from
Benchmark has started to show
rising prices for uncoated spherical
graphite, 99.95% C, 15 micron in size,
on a FOB China basis.
Price ranges in the market have
risen from $2,500 to $3,000/tonne in
Q4 2015, to $2,800 to $3,200/tonne
in Q2 2016.
Benchmark’s uncoated spherical
graphite prices reflect the range of
products seen on the market. As each
product is milled and purified to a
customer’s specification, there is not
one single traded price for spherical
graphite.
For example, the particle sizes of
battery anode material can vary from
12 micron to 25 micron while raw
material quality issues with some
flake sourced in China means not all
product can be used by the major
consumers.
Benchmark has even heard some
new requests for a finer, 5 micron
sized product for battery anode
consumption, an example of how
much the battery-grade specification
can vary.
It will take some growth in the
battery market – which is presently
the second largest for natural flake
graphite in the derivative spherical
form – before it begins to have a
meaningful impact on the flake
concentrate price. At present, the
steel industry, especially in China and
the US are far more influential factors.
Analysing the price trends of each
graphite product over the last two
years, graphite is split into a two tier
market. While nearly all grades of
flake graphite concentrate and value
added products have fallen between
April 2014 and 2016, there is a
marked percentage difference.
For example, flake graphite
concentrates of -100 mesh, +100
mesh and +80 mesh, all with a purity
of 94-95% C have fallen in excess
of 30%. Value added, or derivative
products, however, have seen a much
softer landing with price decreases
ranging from 5% to 17% and, in the
case of expandable graphite, average
price increases of 10%.
These price movements
demonstrate the complexity of the
graphite market and its downstream
products, all of which serve different
end uses with their own supply and
demand dynamics. However, they
are also still impacted by the wider
raw material trends with 66% of flake
graphite being sourced in China.
While steel is still the main driver
for flake graphite concentrate
demand, markets such as batteries
for spherical graphite and flame
retardant materials for expandable
graphite are showing strong growth
prospects.
However, the sourcing of the
precursor flake material is still
dictated by the fortunes of the global
steel industry.
It is a sector which has suffered
even more at the beginning of Q2
after China dumped excess steel
supply onto the global market at
a cut price of 30%. Developments
like this are evidence of a structural
problem with the steel market and a
recalibration is underway to a lower
demand equilibrium.
This means demand for graphite
in this sector is likely to be flat for
some years to come forcing flake
concentrate suppliers, especially
those outside of China, to focus on
specialist grades.
However, should the battery
market grow as expected and
consumption parameters remain at
today’s levels, Benchmark forecasts
the sector will overtake refractories
as the number one market for flake
graphite before 2020.
And once batteries become the
number one market, graphite would
begin to see similar price fluctuations
to the lithium industry.
$700-850/tonne
Flake concentrate
feedstock
Uncoated
spherical
Coated
spherical
Lithium ion anode:
coating/paste
$3,000-3,500/tonne $7,000-12,000/tonne Anode: $25-35,000/tonne
Medium flake
-100 mesh 94-95%
● 99.95%C
● 10-25 micron
Synthetic graphite
Graphite + sovents
+ Copper foil
Source: Benchmark Mineral Intelligence
52,000tpa
27,000tpa
Published in Benchmark Magazine Q2 2016