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Ahead of the Herd newsletter
Graphite
prices heading higher on market tightness
As expected, the electrification
of the global transportation system is creating strong tailwinds
for the EV market.
Power Technology, known for its
research on the energy sector, reports that EV sales more than
doubled in the first half of 2021, increasing by 160% compared to
H1 2020. The 2.6 million units sold, 1.1 million of which were in
China, represent 26% of total new car and truck sales
globally.
An analysis from IDTechEx quoted
by the publication forecasts EV sales in 2021 are on track to
surpass 5 million passenger cars. "If they do, it will mean an astonishing
growth rate of ~86% CAGR since 2011," the report reads.
Virta, which claims to be the
fastest-growing electric vehicle charging platform in Europe,
operating in over 30 countries, is more aggressive in its 2021 EV
sales forecast.
Global plug-in
vehicle sales. Source: Virta
BEV + PHEV sales
and % growth. Source: Virta
"Carried by a decarbonization
challenge most leading nations now take seriously, 2021 is a game
changer in the history of EV sales and it is expected that 6.4
million vehicles (EVs and PHEVs combined) will be sold globally by
the end of the year. It would then represent a 98% year over year
increase," the company states in a report titled 'The Global
Electric Vehicle Overview in 2022: Statistics and
Forecasts'.
Projecting further out, Virta
cites the International Energy Agency's (IEA) Global EV Outlook 2021, whose Stated Policies
Scenario suggests that by 2030, the global EV stock (excluding two-
and three-wheelers) could reach nearly 145 million and account for
7% of the total vehicle fleet.
The more ambitious EV30@30
campaign envisions, plainly, 30% of all vehicles becoming electric
by 2030, putting global sales at 43 million, or almost double that
of the Stated Policies Scenario.
Consulting firm McKinsey &
Company believes EV sales will continue increasing, fueled by
government policies including the Biden administration's stated
goal that half of all new vehicle sales by 2030 be zero-emission;
state-level adoption of credit programs; tougher emissions
standards; and increasing electrification commitments from
OEMs.
Second-quarter EV sales in the US
increased by nearly 200% compared to Q2 2020, contributing to a
domestic penetration rate of 3.6% during the pandemic. The next
report should deliver similar or even better growth
figures.
EVs are likely
to account for more than half of all US passenger car sales by
2030, according to McKinsey. Source: McKinsey &
Company
Li-ion
battery demand
A lithium-ion (Li-ion) battery is
a type of rechargeable battery technology common to portable
electronics, electric vehicles and large grid-scale storage systems
for renewable energy.
These batteries consist of an
anode, cathode, separator, electrolyte and two current collectors
(positive and negative).
The cathode contains lithium,
either in the form of lithium carbonate or lithium hydroxide, while
the anode is made up of graphite. There are no substitutes for
either in a Li-ion battery.
While there are several obstacles
to increasing the penetration rate of EVs to regular vehicles,
including charging station infrastructure and lowering their
sticker prices, recent research suggests the battery storage market
is growing in leaps and bounds.
According to an analysis by
Adamas Intelligence, in 2020 a total of 134.5 gigawatt hours (GWh)
of battery capacity was deployed globally into newly sold passenger
BEVs, PHEVs and HEVs, an increase of 39.6% compared to
2019.
The added capacity is on trend
with a report last year from Roskill, which found that lithium-ion
battery demand is expected to increase more than
10-fold.
"The pipeline capacity of battery
Gigafactories is reported by Roskill to exceed
2,000GWh in
2029, at over 145
facilities globally," the report reads. "Driven by demand from the
automotive and energy storage markets, NCM/NCA type cathode
materials are expected to remain dominant, though other cathode
types will take market share in niche environments or
applications."
In March of this year, Benchmark
Mineral Intelligence said it is tracking 200 "super-sized"
lithium-ion battery cell plants in the pipeline to 2030, bringing
total global capacity to 3.4 terawatt-hours, a massive increase
from the 755 gigawatt-hours in 2020. (1TWh = 1,000 GWh)
The bulk of these sprawling new
battery-making facilities are likely to be in China, which
currently produces around three-quarters of the world's lithium-ion
batteries.
Of the 200 plants that BMI is
tracking, 148 are in China, compared to 21 in Europe and 11 in the
United States.
However, new energy storage
systems in the US are sprouting up. According to
a 2020
report by commodities consultancy Wood Mackenzie,
and the US Energy Storage Association, over 2,000 megawatt-hours
(MWh) were brought online in the fourth quarter of last
year.
And there's more to come. The
firm's head of energy storage, Dan Finn-Foley, predicts the US
energy storage market will add five times more megawatts of storage
in 2025 than was added in 2020, with front of the meter (FTM)
storage continuing to contribute between 75-85% of new MW each
year.
There are a number of battery
plants in the works to join Tesla, whose first gigafactory in
Nevada started production of battery cells in 2017. The company has
a plant in Buffalo, New York, and plans to open a third (US plant)
in Texas by the end of this year. Tesla also has a "pilot line" at
its facility in Fremont, California, for R&D
technologies.
In 2020 General
Motors announced
plans to install its first battery cell factory in
Ohio, a project called Ultium Cells launched with its Korean
partner LG Chem. The latter opened a plant in Holland, Michigan in
2013.
Another South Korean company, SK
Innovation, is planning on opening the first of two battery plants
in Georgia early next year; the company is a supplier to Volkswagen
and Ford.
The latter along with American
auto icon GM have big plans to electrify their fleets. Ford
announced plans to boost spending on electrification by more than a
third, and aims
to have 40% of its global volume electric by
2030, which translates to
more than 1.5 million EVs based on last year's sales.
GM reportedly aspires to halt all
sales of gas-powered vehicles by 2035, with plans to invest $27
billion in electric and autonomous vehicles over the next five
years.
In October Toyota
said it will invest about $3.4 billion on American battery development and
production through 2030.
North
American battery cell manufacturing landscape. Source:
BloombergNEF,
company
announcements
There are
currently 11
EV start-ups racing to catch up with market leader
Tesla, fueled by money
from Wall Street. They include Rivian out of Irvine, California,
Lucid Motors based in Newark, CA, Lordstown Motors from Ohio,
Nikola Corp (Phoenix), Fisker (Los Angeles), Faraday & Future
(Los Angeles), Canoo (Torrance), NIO, Li Auto and XPing from China,
and Arrival, based in London.
The latest car company to commit
to EVs is Nissan,
which plans to spend 2 trillion yen (US$17.6 billion) over the next
five years. The Japanese
automaker is hoping to launch 23 electrified models including 15
EVs, aiming for 50% electrification by 2030 through its Ambition 30
strategy.
This gives you a sense of the
extent to which the EV lithium battery market in the US is
growing.
Need for
graphite
For all the talk of
electrification and battery plant growth, nothing can be achieved
without ensuring there is enough supply of the metals used to power
these vehicles.
A 2020 World Bank report
entitled 'The Mineral Intensity of the Clean Energy
Transition', estimated that production of minerals underpinning the
clean energy shift would have to increase by nearly 500% by 2050 to
meet global demand for renewable energy.
Cumulative
demand for minerals needed for energy storage through 2050. Source:
World Bank
Projected
annual mineral demand under the 2-Degree Scenario. Source: World
Bank
Lithium, obviously a key
ingredient for making EV batteries, is set to endure an
unprecedented shortage of supply in the coming years. Global miner
Rio Tinto has said even if they had another 60 lithium mines, that
wouldn't fill the supply-demand gap. Bloomberg NEF research shows
that over five times more lithium is needed in 2030 compared to
current levels.
Another battery metal less in the
spotlight but also facing severe supply concerns is graphite.
Graphite is the only material that can be used in the lithium-ion
battery anode, there are no substitutes. This is due to the fact
that, with high natural strength and stiffness, graphite is an
excellent conductor of heat and electricity. The only other natural
form of carbon besides diamonds is also stable over a wide range of
temperatures.
According to the World Bank,
graphite accounts for nearly 53.8% of the mineral demand in
batteries, the most of any. Lithium, despite being a staple across
all Li-ion batteries, accounts for only 4% of total
demand.
An electric car contains more
than 200 pounds (>90 kg) of coated spherical graphite (CSPG),
meaning it takes 10 to 15 times more graphite than lithium to make
a Li-ion battery.
For every million electric
vehicles, which is only about 1% of the new car market, we need in
the order of 75,000 tonnes of natural graphite, representing a 10%
increase in flake graphite demand.
The EV battery market alone is
projected to consume well over 1.6 million tonnes of flake graphite
per year, resulting in a 10-fold increase in demand by 2030. This
is worrisome considering that total graphite mined in 2020
for all uses, including lump graphite for pencils
and graphite used in nuclear reactors, was only 1.1 million
tonnes.
It is estimated that the natural
flake graphite market could reach a deficit as soon as 2023, with
few new sources being developed around the world.
Image
by Visual Capitalist
Critical
graphite
At the moment, nearly all
graphite processing takes place in China because of the ready
availability of graphite there, weak environmental standards and
low costs. Nearly 60% of the world's mined production last year
came from China, making it a dominant player in every stage of the
supply chain.
Data
source: USGS. Image by Visual Capitalist
After China, the next leading
graphite producers are Mozambique, Brazil, Madagascar, Canada and
India. The United States does not produce any natural graphite and
therefore must rely solely on imports to satisfy domestic
demand.
The level of foreign dependence
has increased over the years. The US imported 38,900 tonnes of
graphite in 2016 and 70,700t in 2018.
According to the USGS, in 2020
the US imported 42,000 tons, of which 71% was high-purity flake
graphite, 28% was amorphous, and 1% was lump and chip graphite. The
top importers were China (33%), Mexico (23%), Canada (17%) and
India (9%). But remember, the US is not 33% dependent on China for
its battery-grade graphite, but 100%, since China controls all
spherical graphite processing.
It's thought that the increased
use of lithium-ion batteries could gobble up well over 1.6 million
tonnes of flake graphite per year (out of a total 2020 market, all
uses, of 1.1Mt) — only flake graphite, upgraded to 99.9% purity,
and synthetic graphite (made from petroleum coke, a very expensive
process) can be used in lithium-ion batteries.
The USGS believes that
large-scale fuel cell applications are being developed that could
consume as much graphite as all other uses combined.
Can the mining industry crank out
more graphite every year to match this demand? Call me skeptical.
Between 2018 and 2019, world mine production actually declined by
20,000 tonnes, or 1.8%. Global production in 2019 and 2020 was
exactly the same, 1.1 million tonnes.
China's
limitations
Currently there are no producing
graphite mines in the United States, and only 10,000 tonnes a year
is being mined from two facilities in Canada. The fact is, for the
United States to develop a "mine to battery" supply chain at home,
it currently has no choice but to import its raw materials from
foreign countries.
For battery-grade graphite, that
means China, which is growing increasingly adversarial, in terms of
trade, foreign policy and militarily.
Even if the US wants to keep
importing its graphite, doubts have been raised over whether China
could keep up with surging global demand. The top producer has
already taken steps to retain its graphite resources by restricting
its export quota and imposed a 20% export duty.
Metal Bulletin reported
in October that Chinese
graphite prices are likely heading higher in the last quarter of
this year due to rising electricity costs
and reduced power supply, as well as insufficient inventories and
inadequate availability of feedstock for spherical graphite
processing.
High
power costs and limits on energy consumption in China may make it
increasingly difficult for graphite producers to stockpile material
to serve customers during the winter months. Graphite producers
typically halt production from mid-November/December until
March.
Prohibitively
cold temperatures in northern China's Heilongjiang province, where
the majority of natural flake graphite production is centered,
typically prompt extended graphite production stoppages, with
producers supplying customers from inventory during the outage
period.
If
natural graphite producers in Heilongjiang are unable to produce
sufficient volumes of material for their stockpiles, given power
shortages and elevated electricity costs, we may see natural
graphite shortages emerge in the coming months, lending upward
support to prices.
In short, the days of affordable,
abundant graphite from China are numbered, adding further urgency
for the US to develop its own supply.
The demand for graphite is only
headed in one direction. A White House report on critical supply
chains showed that graphite demand for clean energy applications
will require 25 times more graphite by 2040 than was produced
worldwide in 2020.
We have clearly reached a point
when much more graphite needs to be discovered and
mined.
This is why the US is looking to
develop its own "mine to battery" supply chain, which would include
a cost-competitive and environmentally sustainable source of
graphite.
Political
support
In February of this year,
President Joe Biden signed an executive order (EO) aimed at
strengthening critical US supply chains. Graphite was specifically
identified as one of four minerals considered essential to the
nation's "national security, foreign policy and
economy."
Fortunately there are a growing
number of US politicians who like the idea of developing domestic
critical metal mines, and are working with the mining industry to
achieve results.
Among the most vocal is Alaska
Republican Senator Lisa Murkowsi. Murkowski helped draft the bipartisan
infrastructure bill recently passed by Congress. The $1.2 trillion package includes money
for research and demonstration projects and other efforts aimed at
lessening the reliance on China for the supply of critical minerals
like lithium and graphite.
In discussing America's
dependence on foreign nations such as Russia and China to meet its
resource needs, Murkoswski said:
"We need a rational,
clear-headed, eyes-wide-open approach to energy and mineral
development. We don't want to go back on energy, and we can't be
caught flat-footed on minerals. We have the resources, and we have
the highest labor standards in the world, the highest environmental
standards in the world. Our energy workers, our miners, they hold
themselves to that standard. So instead of importing more from
places like Russia and China, we need to free ourselves from them
to the extent that we can and establish ourselves as this global
alternative."
Fortunately, there is plenty of
North American graphite for local consumption, if industry and
government can find the collective will to make it
happen.
The Kigluaik Mountains on
Alaska's Seward Peninsula hosts a deposit with the size and grade
to meet the nation's growing need for graphite in Li-ion
batteries.
Graphite
One
Earlier this year, the Federal
Permitting Improvement Steering Committee (FPISC) granted
High-Priority Infrastructure Project (HPIP) status
to Graphite One Inc.
(TSXV:GPH, OTCQX:GPHOF),
which is aiming to develop America's first high-grade producer of
coated spherical graphite (CSG) integrated with a domestic graphite
resource at Graphite Creek, Alaska.
The HPIP designation allows
Graphite One to list on the US government's Federal Permitting
Dashboard, which ensures that the various federal permitting
agencies coordinate their reviews of projects as a means of
streamlining the approval process.
Graphite Creek is the
highest-grade and largest known flake graphite deposit in North
America, spanning a distance of 18 km.
The Graphite
Creek property is located 55 km north of Nome, Alaska
The project is envisioned as a
vertically integrated enterprise to mine, process and manufacture
high-quality CSPG for the lithium-ion electric vehicle battery
market. Graphite One aims to become the first US vertically
integrated domestic producer to do so.
The latest resource estimate
(March 2019) for Graphite Creek showed 10.95 million tonnes of
measured and indicated resources at a graphite grade of 7.8% Cg
(graphitic carbon), for some 850,000 tonnes of contained graphite.
Another 91.9 million tonnes were tagged as inferred resources, with
an average grade of 8.0% Cg containing 7.3 million
tonnes.
A Preliminary Economic Assessment
(PEA) supports a 40-year operation with a mineral processing plant
capable of producing 60,000 tonnes of graphite concentrate (at 95%
purity) per year. On a pre-tax basis, the project has a net
present value of $1.03 billion using a 10% discount rate, with an
internal rate of return (IRR) of 27%.
Once in full production, Graphite
One's proposed graphite products manufacturing plant — the second
link in its proposed supply chain strategy — is expected to turn
graphite concentrates into 41,850 tonnes of battery-grade coated
spherical graphite and 13,500 tonnes of graphite powders per
year. A location in the Pacific Northwest is being
considered.
Conclusion
There are no substitutes for
lithium and graphite; these critical metals are expected to remain
the foundation of all lithium-ion EV battery chemistries for the
foreseeable future.
Lithium is in the battery cathode
and graphite, or more precisely, coated spherical graphite, is in
the anode.
Graphite has long been used in
the aviation, automotive, sports, steel and plastic industries, as
well as in the manufacture of bearings and lubricants. Graphite is
an excellent conductor of heat and electricity, corrosion- and
heat-resistant, as well as strong and light.
Lithium-ion batteries contain 10
to 15 times more graphite than lithium. The need for lithium
batteries not only for EVs, but energy storage, handheld tools like
drills, and an array of consumer electronics like cell phones and
laptops, is almost certain to outstrip supply.
In fact, the lithium-ion battery
manufacturing capacity currently under construction would require
flake graphite production to more than double.
(BMI estimates the major
automakers have committed over $300 billion to developing EVs, and
more than 2 terawatts of lithium battery production capacity,
equating to 800,000 tonnes of new annual graphite demand by 2023
and 1.4Mt by 2028.)
To meet this demand, 12 battery
factories are being built in the United States, including Tesla's
Texas "Terafactory", which would have an annual battery production
capacity of 1 terawatt-hour, or 1,000 gigawatt-hours
(GWh).
According to BMI, just one 30 GWh
per year lithium-ion battery factory needs roughly 33,000 tonnes of
graphite anode material per year. The Texas Terafactory would
demand more than 1 million tonnes of graphite per year, about one
year's worth of current mined graphite output for all uses.
If all 12 factories are built,
they will require about 396,000 tonnes of graphite, every year.
This is nearly two-thirds the amount of graphite produced by China,
by far the largest graphite producer in the world, in 2020.
Remember, the US currently produces NO natural graphite, yet it is
consumed by roughly 90 American companies.
According to MINING.com's
EV Metal Index, graphite
prices have held steady above $700 a tonne in 2021. But the more
important number is the dramatically higher amount of graphite
being used for EV batteries. MINING.com states:
In April 2021,
just over 14,000 tonnes of synthetic and natural graphite were
deployed globally in batteries of all newly-sold passenger EVs
combined, a 233% jump over the same month last year.
The evidence piling up here leads
to only one conclusion: if we continue to rely on China and other
foreign source for graphite, the price of this indispensable EV
battery ingredient is going to go through the roof.
Explosive EV demand + tight
supply especially from China, which dominates the production of
coated spherical graphite needed for Li-ion batteries = supply
insecurity and higher prices.
There is however a happier ending
to this story, and that is taking steps to secure a domestic supply
of graphite with enough tonnage for America to reduce and even
eliminate its dependence on foreign suppliers.
In my opinion, we
can
build a North American "mine to
battery to EV" supply chain, using graphite mined and processed
from Graphite One's Graphite Creek deposit.
If we're going to spend hundreds
of billions trying to electrify and decarbonize, it just makes
sense to us at AOTH that the mining is done in-country. Leaving it
up to foreigners only weakens the supply chain, leaving it
vulnerable to breakage.
US critical minerals have been
ignored for decades but they are finally getting the attention they
deserve. Graphite One is a company on the move with the largest and
highest-grade flake graphite deposit in the United
States.
Graphite One
Inc.
TSXV:GPH, OTCQX:GPHOF
Cdn$2.18, 2021.11.30
Shares Outstanding
83.3m
Market cap Cdn$181.7m
GPH website
Richard (Rick)
Mills
aheadoftheherd.com
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