Graphite, crucial in the burgeoning battery sector, remains largely underappreciated and consolidated, primarily sourced from China. Its significant use in lithium-ion batteries, vastly exceeding the volume of lithium, underscores its pivotal role. Recent export restrictions by China have highlighted the sector’s vulnerabilities, setting the stage for potential investments as demand for electric vehicles and renewable technologies soars, mirroring lithium's historical growth trajectory. The graphite industry, small and dominated by a few major players, is poised for significant investments. The existing graphite mines, given their strategic importance, are likely to see increased valuation as the industry expands to meet the growing global demand for green technologies.
Graphite is a mineral that is a crystalline form of the element Carbon. Graphite can both occur naturally and be synthesized. Naturally occurring graphite appears in ore deposits, and synthetic graphite is created by graphitizing non-graphitic carbon.
On the day-to-day, most graphite that we interact with is used in pencils. While significant, pencils take up a small share of world graphite use at only 7% of the 1.1 million tonnes mined per year [1]. Most pencil graphite is low-quality amorphous graphite sourced from China [2].
One of the main uses for graphite in modern day is as an anode in lithium-ion batteries.
Lithium-ion batteries are rechargeable batteries that use the chemical properties of lithium to store energy. When charging a lithium-ion battery, lithium ions move from the cathode through an electrolyte solution and into the anode. When discharging the battery, the lithium ions move from the anode through the electrolyte and back into the cathode. In a lithium-ion battery, the anode is composed of graphite and the cathode is composed of lithium [3]. In a lithium-ion battery, there is typically 10-20 times as much graphite in the battery as there is lithium [4].
Lithium is formed through stellar nucleosynthesis, a process by which light elements are fused together with heavy elements within a star. This mainly happens during the later stages of a star, especially for red giants and supernovas. Less commonly, lithium is formed through cosmic ray spallation, a process in which high-energy cosmic rays collide with heavy elements such as carbon, oxygen, and nitrogen, producing lithium [5].
Lithium can be found although the world, with the main producing countries of 2021 being Lithium can be found throughout the world, with the main producing countries in 2021 being Australia (61,000 tonnes), Chile (39,000 tonnes), China (19,000 tonnes), and Argentina (6,200 tonnes) [6].
The most common methods of extracting lithium from lithium deposits are through open-pit and underground mining. In open-pit mining, overlying layers of rock and soil are removed to expose lithium-bearing ore, which is then removed and processed. In underground mining, narrow ore bodies are mined using drift and shaft mining to extract lithium-bearing ores [7]. Another common method of extracting lithium is through solution mining. Lithium brine deposits in salt flats are pumped to the surface level from underground reservoirs and then processed to extract the lithium content [8].
Lithium is not a particularly rare metal, being the 33rd most common element found on Earth. The lithium industry is very large and has done an excellent job of continuing exploration around the world to prevent lithium shortages and supply chain constraints [9]. Furthermore, due to its abundance in nature, no one country has a major concentration of lithium deposits compared to others.
This is not the case for graphite. While like lithium, graphite is not incredibly rare, graphite deposits and production are heavily concentrated within China.
In December 2023, Beijing imposed major controls on the exports of graphite. Month-over-month, graphite exports from China dropped 91%. On the news of the upcoming restrictions, graphite shipments in China, which averaged 17,000 tonnes, increased to 45,000 tonnes in November.
To see why China restricted graphite exports, we have to look back at the composition of lithium-ion batteries and at the domestic electric vehicles market within China.
As we know, in a lithium-ion battery, there is 10-20 times as much graphite in the battery as there is lithium. This means that in a Plug-in Hybrid Electric Vehicle (PHEV), there’s 10 kg of graphite in the vehicle, and in a Battery Electric Vehicle (BEV), there’s approximately 100 kg of graphite in its battery [10].
In 2023, 631,821 tonnes of graphite were put on the roads in the form of BEV and PHEV veichles, a 41% YoY increase from 2022. The largest increase came from PHEV at an 81% YoY increase [11].
The overall graphite demand from EVs has been on an exponential growth trajectory. Demand across the market, especially within China, has been incredibly strong, especially from the Chinese domestic PHEV market, which is almost the size of all other markets combined and growing rapidly. Once we take into account the exponential growth of the Chinese EV market, we can see why Beijing has started to impose restrictions on high-grade graphite that can be used for EVs. As it stands, one of the single largest producers of graphite has restricted exports on the material, dropping exports by 91% MoM between November and December.
While this move from Beijing has not immediately cut off the supply of graphite, it does create a vacuum within the market that non-Chinese miners and producers will have to fill. Unlike lithium, in which there are over 100 publicly traded companies that actively produce lithium, there are only 13 publicly traded graphite stocks, of which only 7 have a real graphite output. Of the 7 pure graphite stocks, the total combined market cap is $707 million, with over half the combined market cap coming from a single company. In contrast, the single largest lithium mining stock, ALB, has a market cap of $14.11 billion.
Exploratory Stage
Focus Graphite Inc. (OTCQB: FSCMF)
Graphite One Inc. (OTCQX: GPHOF)
Active Output
Syrah Resources Ltd. (OTCMKTS: SYAAF)
Ceylon Graphite Corp (OTCQB: CYLYF)
Northern Graphite (OTCQB: NGPHF)
South Star Battery Metals Corp. (OTCQB: STSBF)
NextSource Materials Inc. (OTCQB: NSRCF)
Black Rock Mining (OTC: BKTPF)
Westwater Resources (NYSE American: WWR)
Graphite Product Processing
GrafTech International Ltd. (NYSE: EAF)
Gratomic Inc (OTCQX: CBULF)
Leading Edge Materials Corp (OTCQB: LEMIF)
Mason Graphite (OTCQX: MGPHF)
While the conclusion that the graphite sector should be equally valued to the lithium sector is a bad assumption, the graphite sector, in the face of growing demands, has been overlooked due to the rapid growth of the lithium sector. Furthermore, with major graphite producers halting exports, a large investment into exploration and producing mines is an inevitable necessity.
In the face of rising demands for lithium-ion batteries, while many investors flock to invest in lithium, graphite has been an extremely overlooked asset, being a core component for batteries required in far higher quantities. The graphite sector is far more consolidated than the lithium sector, with only a handful of mines taking up most of the market share. In conclusion, all indicators are showing that graphite as a sector is where lithium was 15 years ago, with the sector seeing future growth, increases in demand, and overall investment.
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