The talk of trade war with China is bringing the idea of Chinese mineral dominance back to the pages of investment teaser ads… we’ve seen several in the last week or two that focus on rare earths, where China remains dominant and might have some extra negotiating leverage in trade disputes, and this latest pitch from Gerardo Del Real also hits on some of those ideas… partly because, yes, graphite is also a commodity where supply (and demand, frankly) is dominated by China.
The graphite story gets teased with some regularity, and mostly it’s because of lithium-ion batteries these days… which means that, like the lithium stories (and the cobalt stories), it’s all based on projections of much higher penetration for electric vehicles, which require large batteries and therefore increase demand dramatically for their major components (depending on the design and the size of the battery, a single electric car could easily “consume” 20 pounds of lithium and 100 pounds of graphite… along with 40 pounds of cobalt in many cases, though there are some lithium battery chemistries that use little to no cobalt).
So what is it that Del Real is pitching this time? A shortage of graphite, particularly…
“Just a year ago the world’s graphite mines produced a combined total of 80,000 tons — but Tesla’s Gigafactory is able to consume 115,000 tons a year all by itself.”
That’s not true. The world produced well over a million tonnes of graphite last year, more or less the same amount it produced the year before and similar to the levels of much of the past decade. Maybe he’s using some assessment of the quality of that graphite, or asserting that the total production of the highest-quality graphite was 80,000 tonnes last year… but that’s a pretty squishy bit of data.
The story of graphite’s impending supply shortage and huge spikes in demand is one that has been around the investing world for a long time — initially the hook that newsletters used was graphene, which is a sexy and exciting nanomaterial made from graphite, but more recently the lithium ion batteries have been the headline. Which is fair, because most designs of those batteries use more graphite than they do lithium (graphite is the anode, cobalt or some similar alloy (nickel-cobalt, etc.) is often the cathode, lithium salts are the electrolyte)… though lithium is also far more expensive, spiking to $15,000/tonne or so (medium flake graphite is around $1,000/tonne).
Part of the challenge in understanding all of this is that there’s no central graphite market, and no exchange that sets a graphite price — graphite is sold in lots of different purities and different flake sizes, and different customers will pay different prices for variations of one sort or another… and unlike a lot of other commodities, there