Last year was a challenging one for battery metal stocks and graphite stocks.
However, there are signs of a possible turnaround in 2024.
These include a report by UBS in October 2023, which predicted that demand for natural graphite would increase more than sixfold to 6.3 million tonnes by 2030 and a global supply deficit would arise as early as 2025.
UBS based this on the forecast that sales of electric vehicles will rise to over 51 million per year by 2030, with battery sizes increasing, more lithium iron phosphate (LFP) batteries and a greater proportion of natural graphite anodes being used.
While LFP batteries are not as robust as other lithium-ion batteries and require more frequent charging, UBS expects car manufacturers to increasingly use them in lower-cost vehicles due to their cost advantages and lower carbon footprint.
The second strong indicator was the start of graphite export controls in China in December 2023. China produces over 65% of the world's graphite and Chinese companies control more than 80% of the market for graphite battery anode material.
The Chinese Ministry of Commerce states that the graphite export restrictions are not targeted at any specific country. However, industry experts believe China is giving preferential treatment to Chinese companies operating abroad, while purchases by foreign companies are being blocked.
In addition to export restrictions, there is also a growing call for a local, ESG-compliant, carbon-neutral supply chain in North America and Europe, which is expected to decouple from the Chinese price structure. Market participants are looking for graphite that is not tied to the Chinese anode value chain.
Synthetic graphite anode production can be over 4 times more carbon intensive than natural graphite, according to Benchmark Minerals with its high heat requirements and generally uses fossil fuels as a feedstock.
For natural graphite, 67% of the carbon emissions come from the spheroidisation process – over which China has a monopoly. The spheroidisation process involves the mechanical rounding of the flake graphite particles and leads to improvements in the performance of the graphite battery anode.
These assessments are shared by industry analysts, who assume that localised demand structures will drive up prices for graphite that meet certain standards. As a result, several non-Chinese graphite companies are reviewing supply contracts based on price indices that are independent of the Chinese market.
These developments, combined with the growing demand for environmentally and socially responsible (ESG-compliant) graphite from projects outside China, emphasise the urgency of diversifying supply chains.
Industry experts such as Benchmark Mineral Intelligence predict that major car manufacturers will invest more than USD $300 billion in the development of electric cars, along with the construction of over 200 LiB mega-factories, which is expected to lead to a surge in graphite demand.
These factories are expected to create a LiB production capacity of over 3,000 GWh, leading to an annual graphite demand of over 1,000,000 tonnes by 2025. To meet this growing demand, graphite production will need to more than double in a short period of time.
The EU Battery Passport legislation is expected to be a game-changer, pushing EU OEMs and battery makers to source low CO2 battery inputs from sources with a verifiable supply chain.
The EU “Fit for 55” package of reforms mandates that for all new cars introduced to the European market should be zero-emission vehicles by 2035.
The ultimate goal of the EU Battery Passport is to ensure all batteries introduced into the EU do not exceed a certain manufacturing emission threshold, emphasising the importance of accurately calculating battery emissions.
These factors suggest that some natural graphite stocks are likely to be rerated in 2024 and beyond and see mid-term upside.
Investors are focusing on companies with scalable, high-quality projects in Tier 1 countries that may be involved in downstream processes, such as International Graphite.
International Graphite Ltd (ASX: IG6; FSE: H99)
International Graphite (IG6) is currently developing a strategy to supply Australian and international customers from graphite mining through to anode material development.
The company owns the Springdale graphite resource, which is the second largest natural graphite deposit in Australia with 49.3 million tonnes and a total graphite content of 6.5% (TGC).
Earlier this year, International Graphite released encouraging results from its new scoping study of the Springdale-Collie integrated mining to market project, the results of which indicate a globally competitive cost structure and robust project economics.
This updated scoping study is based on the use of concentrates produced at Springdale, and projects an annual input of 500,000 tonnes of material to the processing operation. The projected outputs are 18,000 tonnes of CPSG (coated purified spherical graphite) per annum, resulting in an estimated annual EBITA of US$142 million.
In February this year, the company announced the successful wet commissioning of its new graphite micronisation plant in Collie, Western Australia, with an annual capacity of 200 tonnes.
The qualification micronising plant is the largest in Australia and a milestone in the development of a domestic graphite industry. It will likely be the first to produce graphite products in Australia for customer acceptance testing.
The new plant is the precursor to a commercial micronising operation with a capacity of 4,000 tonnes per annum, which the company plans to build in Collie. Construction of this facility, with an estimated capital cost of $12.5 million, could begin as early as mid-2024, depending on financing.
Micronised graphite is the first step in the production of battery anode material for battery-powered technologies, particularly for electric vehicles and energy storage.
Managing Director and CEO Andrew Worland said: "We see commercial micronisation as an important first step in our strategy to produce advanced battery anode materials at Collie using concentrate from our 100% owned Springdale Graphite Project near Hopetoun in Western Australia."
The micronisation of graphite will allow International Graphite to build a broad customer base, gain additional operating experience and create markets for future by-products.
International Graphite is traded on the Australian Stock Exchange and in Germany on the Frankfurt, Tradegate and Stuttgart stock exchanges.
The March 2024 Singapore Investor Presentation for International Graphite is attached below.