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Graphite price pressure remains despite Chinese output slowdown

15th June 2015

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – Flake graphite prices continued to come under pressure in May, as Chinese efforts to reduce stockpiles saw prices for lower-value grades slip further, London-based research house Benchmark Mineral Intelligence said in a new report on Monday.

Benchmark analyst and MD Simon Moores advised in a note to clients that its Flake Graphite Index fell a further 0.85% points in April, mainly owing to a decline in the price of lower purity grades.

China had spent the last eight months destocking, particularly for grades smaller than -100 mesh, forcing prices down in international markets.

Higher purity (>93% graphitic carbon) grades were largely unchanged, with tightening supply conditions giving suppliers greater leverage in short-term contracts. Nevertheless, an increase of output in China as mines came back on stream could cause further decreases over the coming weeks, with consumption showing few signs of improvement in the short term.

According to Benchmark data, graphite prices were currently down 22.7% from a peak four years ago. Benchmark’s Flake Graphite Index was down 25% since January 2011.

Moores said that spherical graphite prices were stable once again in May, with the interest surrounding battery raw material demand yet to convert into higher consumption rates. Despite the excess supplies this had created in the short-term, high production costs and regular positive stories from the downstream battery sector had allowed suppliers to insulate prices.

This stand-off had caused stagnation in the market during the second quarter, with the effects of major battery expansions unlikely to reflect in prices until the later stages of the year. Today, prices were down 8% year-on-year, but stable since the start of the year.

Moores pointed out that rising Chinese output was set to introduce fresh supply-side pressures in the flake graphite sector over the northern hemisphere’s summer months. Year-to-date Chinese output had fallen 41% on 2014. Despite many Chinese producers remaining offline moving into June, output would slowly increase, placing further pressure on prices.

Moores also expected that increased graphite consumption throughout May could further add to demand growth over the coming months, which would compensate for increased Chinese supplies and insulate the market from further substantial price decreases approaching the second half of the year.

Tesla Motors’ announcement regarding their new energy storage product line could see spherical graphite supplies tighten at an accelerated rate. The company had already received significant interest in both its residential and commercial storage products, which would go on sale later this year. This was likely to cause an upturn in spherical graphite prices by mid-2016.

POSITIVE OUTLOOK
Flake graphite output was set to improve moving into this month, however continued pressures within the Chinese market looked set to cause output to again fall to below 2014 levels.

Output in Hubei province, China, was set to start again with Hengda Graphite confident that problems with their tailings pond had now been resolved. Output from Shandong province was likely to remain at low levels, however, with regional authorities in Laixi county signalling that they would prevent production restarts until environmental concerns in the area were addressed.

Elsewhere, output was expected to reach peak levels over the coming months, with steady output growth expected from projects in Europe, Africa and South America.

Spherical graphite output was also due to increase moving into June, with Chinese suppliers set to increase stock in preparation for increased demand in the second half of the year.

Moores expected graphite consumption to rise as the market moved into the seasonal peak demand. While industrial markets continued to be constrained by slower construction and automotive growth in developing nations, global industrial growth remained stable. Many consumers would seek to boost inventories ahead of the summer, which would see greater sales in June.

Benchmark expected graphite prices to stabilise as consumption levels rose.

Moores said that greater pressure would continue to be felt across lower-value grades; however, increased industrial activity was likely to insulate the market from further decreases.

For higher-value grades, tighter supply conditions following destocking in China would see some upward price pressure in the market; however, increased output within China was likely to delay a slow recovery in prices until the second half.

“With the majority of producers outside of China already operating close to capacity, orders from the European and US markets could provide suppliers with some leverage in negotiations. Any potential price increases will be restricted by Chinese offers, which are unlikely to rise above existing levels in the short term. Battery sector developments could see increased sales of spherical graphite but existing inventories will prevent a major shift in the market before Q3,” Moores said.

Edited by Creamer Media Reporter

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