Maybe we don’t need to worry about graphite supply problems after all.
It turns out there is a more or less infinite supply out there.
Researcher Nikku Madhusudhan, from Yale University, Connecticut, has found what appears to be enough graphite to last for millions of years.
To sweeten the deal, the deposit is full of diamonds too.
Sounds good to me. Trouble is, there’s a catch…
The catch is that the mining team would have to fly 40 light years to a planet with the catchy name of ’55 Cancri-e’.
The planet is twice the size of Earth, and orbits a sun-like star in the constellation of Cancer. Because of this, it’s not yet listed on the ASX.
According to the Yale University website,
‘…the new research suggests the planet…appears to be composed primarily of carbon — as graphite, and diamond, iron, silicon carbide, and, possibly, some silicates’
You can keep the diamonds — I’d prefer the graphite!
Given the ‘reasonable extra cost’ of the 40 light-year travel time on ‘Fly-in-Fly-out’ (FIFO) mining…we’ll stick to exploring East African graphite deposits for the time being!
In mining, getting up and running, and then enduring commodity cycles, is all about having low costs. And right now, some stiff competition to existing producers appears a bit closer to home.
Why all this Fuss about Graphite Anyway?
Well despite the name, a ‘lithium ion battery’ is mostly graphite.
So, high scale, low-cost graphite production is music to the ears of anyone in the lithium ion battery sector, because the sector is already growing extremely rapidly. Since 2009, the size of the li-ion battery sector has increased 52% in 3 years from $10.6 billion, to $16.1 billion.
Most analysts agree it will get much larger. They just can’t agree HOW large it will get.
Citi’s analysts expected it to triple by 2020. That’s at the conservative end.
At the slightly more bullish end of the scale, Japan’s Ministry of Economy, Trade and Industry estimate the market will increase 15-fold, to reach a size of $US250 billion by 2020.
A big driver of these bullish growth forecasts is the current growth rates of hybrid vehicles. The Toyota Prius is the world’s 3rd best-selling car now. But thinking ahead, the future potential growth of electric vehicles is the real hot potato.
The batteries in electric vehicles take around seven times as much graphite as those of hybrid vehicles. So any expansion in the electric vehicle industry will drive much higher graphite demand.
It’s not just vehicles either. Consumer electronics dominate the li-ion battery market today. Mobile phones, laptops, iPads, and other gadgets represent 60% of the li-ion battery market. You just have to look at Apple’s share price to see how well the ‘gadget sector’ is doing.
But focusing on mobile phones alone, according to the International Telecommunication Union, out of a population of 7 billion people alive today there are 5.9 billion mobile phones in use around the world.
And by 2015, they reckon there will be MORE mobile phones in use than there are people on the planet, as some users double up.
Graphite is used for a number of other things, such as refractories (e.g. crucibles for steel making), automotive parts and lubricants. The fact is that use in lithium ion batteries still only makes up around 10% of total demand.
However, the demand from the expanding lithium ion battery sector is where the growth is coming from.
Graphite demand is expected to grow at around 3% without li-ion batteries. But once you factor in the demand from li-ion batteries, this growth rate jumps to around 9%. Over a decade, this makes a huge difference to the size of overall graphite demand, as this chart shows.
Lithium ion Batteries — Driving a Huge Jump in Graphite Demand
Right now the graphite market would not be able to meet anything like this kind of demand.
Demand is increasing fast, so the sector better step up soon. Until recently, there was very little in the way of large-scale projects in the pipeline that could help bridge this gap.
A graphite stock I tipped earlier this year for Diggers and Drillers readers may be in a position to do this, and yesterday got the backing of a tier one international bank to finance its next steps.
It’s important to look beyond the headline numbers of the graphite market though, and see what type of graphite the new users want. For high end uses, like li-ion batteries, it’s generally the premium product, flake graphite.
Prices for this are over double those of the lower quality, and more common, amorphous graphite. So it’s the graphite deposits with high levels of flake graphite that stand to do the best in the sector.
Where things get really profitable though is synthetic graphite, which comprises a separate market about the same size as that for natural graphite. This ultra-high quality product sells for up to 10 times as much as flake graphite.
It’s possible a company could find natural graphite of high enough quality that could be cost effectively processed and turned into a product that could substitute this synthetic graphite.
Theoretically about 500,000 tonnes a year of synthetic graphite could be displaced this way if the quality was good enough, and supply was secure. This would be the Holy Grail for a graphite explorer, as suddenly the potential market gets a whole load bigger.
As some deposits as close to us as East Africa have a chance of ticking all these boxes, we probably don’t need to worry about deep space exploration to check out 55 Cancri-e just for the minute…
Unless you’re in the market for a planet-sized diamond, that is.
Dr. Alex Cowie
Editor, Diggers and Drillers
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