China Plans Graphite Megafactories to Meet Booming Demand for Battery Storage

China is leading efforts to deliver an almost threefold increase in global graphite processing capacity by 2020, to meet mushrooming lithium-ion battery industry demand.

The Chinese firms Shanshan Technology, BTR New Energy Materials and LuiMao Graphite (in association with BAIC Automotive Group) are building lithium-ion battery graphite anode megafactories with a total processing capacity of 260,000 metric tons per year. 

Hitachi Chemical, in Japan, is planning another facility to process 100,000 metric tons of graphite a year. The increases compare to a total estimated global processing capacity of around 200,000 metric tons at present.

Last year, graphite production amounted to just 100,000 metric tons.

The increase in processing capacity should allow the battery industry to churn out 300 gigawatt-hours of lithium-ion cells a year, enough to power 6 million Tesla Model 3s, according to Benchmark Mineral Intelligence.

But as demand for lithium-ion batteries continues to soar, there are fears the increase in processing capacity may fail to keep up, raising the possibility of supply-chain bottlenecks similar to those noted for cobalt and lithium.

“It is actually the biggest raw material by volume going into the batteries, significantly larger than cobalt,” said Andrew Miller, a senior analyst at Benchmark Mineral Intelligence.

Graphite, a naturally occurring form of carbon, is not uncommon in nature; the U.S. Geological Survey estimated world production amounted to 1.2 million metric tons last year. The problem is being able to find the right type of graphite, said Miller.

The battery industry uses two types: synthetic and naturally occurring flake graphite. Both must be as pure as possible, which is why the availability of processing plants is almost as important to the graphite supply chain as the availability of the raw material itself.

However, while graphite supply pinches might hobble battery manufacturing capacity, the material is less likely than some others to have an impact on pricing.

The cost of the substance ranges from between $7,000 and $12,000 per metric ton for natural spherical graphite anode material, to between $15,000 and $20,000 per ton for the synthetic equivalent.

This is still way below the $60,000 or so per metric ton being demanded for cobalt, though.

Also, synthetic and flake graphite compete for market share but can also be complementary, said Miller, allowing battery makers to seek out combinations that offer the best performance and value for money.

Even with growing processing capacity, however, Miller said the rapidly ramping demand for graphite means supply-chain constraints are still a possibility. “Nothing has been done in the industry at this scale before,” he said.

This situation has led some observers to claim lithium-ion battery production faces a significant risk from graphite scarcity.

“If shortages for lithium and cobalt are looming large, shortages of graphite are even scarier,” screamed a press release this month from Safehaven, an investment tipping service touting shares in U.S. exploration firm Global Li-Ion Graphite Corporation.

Spot prices for graphite had risen 300 percent since January, hitting $35,000 per metric ton, and demand for tech-grade material was expected to soar 200 percent in under three years, Safehaven said.

China, which has extensive natural reserves of graphite, is clearly keen to address those supply-chain scares. But a problem its megafactories might face is what to do with the large amounts of graphite production that fail to make the grade for the battery industry.

“When you bring a flake graphite mine into production, you couldn’t put all that 20,000 tons of production into batteries,” Miller said. “It wouldn’t be the right grade or the right state. One of the big challenges for the graphite industry is apportioning out what your mine does produce. You can’t just sell to the battery industry.”

Even if the threat of graphite supply chain shortages is minimal, it adds to similar worries over other materials, particularly cobalt and lithium.

Taken together, the slim chances of a supply mismatch in any of these materials markets may add up to a significant risk to lithium-ion battery production. It is anyone’s guess which material will run out first, though.