GRAPHITE: Spherical graphite producers impacted by low demand

UNITED KINGDOM - A report by Roskill states that low prices are having a significant impact on the profitability of spherical graphite producers. According to the market analyst, the price decline – which has hit a two year low, with FOB (free on board) China prices (for 99.95% 15 micron material) hitting US$2,200 per tonne to US$2,350 per tonne in the first week of July - has been driven by sluggish downstream demand from the new energy vehicle (NEV) battery sector. In the firm’s view, the combination of major cuts to Chinese NEV incentives that took place in early 2019 and the ongoing effects of the COVID-19 pandemic on global markets is to blame for the weak demand. To assess the profitability of graphite production, Roskill’s Spherical Graphite Cost Model Service conducted a cost model analysis to simulate the current production costs for spherical graphite producers. “The results show that, at an average market price of US$2,275 per tonne (or US$2,014 per tonne excluding VAT), the industry as a whole delivers an average EBITDA profit margin of 35%,” the report reads. “However, spherical graphite plants are relatively capital intensive so, after taking into account sustaining capital expenditure and depreciation of development cost, this profit margin tightens considerably and is even negative for some producers.” In Roskill’s view, the side-by-side comparison between the different processing methods shows that plants utilizing high temperatures and alkali acid processing methods give the highest and lowest cost respectively. Yet, the analyst highlights the fact that these plants only accounted for a relatively small portion of the industry, with the HF (hydrofluoric) acid route being by far the most common method. “HF is readily available in China and, historically, environmental regulations regarding its use were limited. As the Chinese government continues to tighten pollution controls, however, production costs for HF and other chemical processing methods are rising. Disruptions to raw material supplies within China have led to rising prices for HF in recent years,” the document concludes.