THE SUPPLY SHORTAGE THAT COULD DERAIL THE ELECTRIC CAR BOOM
An already voracious commodity supercycle is now witnessing even greater momentum amid fears of major supply-chain disruption and fallout from ongoing geopolitical conflicts that has sent markets into a tailspin.
Supply shortages of key battery materials from lithium and cobalt to nickel and graphite were looming large over the EV industry since the second half of last year. With EV sales expected to double this year, auto giants are desperate to avoid battery supply chain disruptions and soaring costs of raw materials. While the bulk of the media attention has been on lithium, an even bigger shortage could threaten another key battery material: graphite.
Speaking to S&P Global Platts, Tirupati Graphite CEO Shishir Poddar said that by 2030, graphite demand is expected to be triple our global production capability. Poddar notes that we'll need up to 4 to 5 million tons more per year of graphite.
This may provide a major opportunity for one of the world's top graphite processing companies, Graphex Group Ltd (GRFXY). Not only does Graphex have operations in North America, but it also has processing facilities up and running in Asia producing this key battery material for almost 10 years right next to one of the world's largest graphite mines. Now, Graphex is gearing up to list on the New York Stock Exchange (NYSE), making the opportunity even more exciting to us.
The $50-Billion Graphite Opportunity
The global graphite market is projected to be worth $50 billion by the end of this decade.
Why? It's simple: Graphite makes up between 20%-30% of the material of every EV or energy storage battery, serving as the negative end, or the "anode", without which there is no lithium-ion battery at all.
With global EV sales expected to double this year alone in an electric vehicle market that is already worth $3-trillion… With battery gigafactories being built up at a pace never seen before in any industry… And with just a U.S. energy storage market expected to grow to $426 billion over the next decade… The graphite and local processed graphite shortage may not just be imminent, it's upon us.
Demand is already soaring: But it is about to skyrocket.
In the United States, approximately 13 new battery gigafactories are said to be in the works, which may be causing panic along the battery material supply chain. Worldwide, these factories are quickly dotting the landscape adding desperation to manufacturers who are scrambling for materials offtake deals.
100% of Current Global Processed Graphite Comes from Asia
The United States hasn't produced any graphite in decades. That leaves China, the only country that has any notable graphite processing facilities. In fact, most of the graphite we use originates in China and near 100% of the processed graphite comes from China.
Some 70% of all graphite utilized for the EV and Energy Storage industry comes from China, and Graphex Group Ltd (GRFXY) via their wholly owned subsidiaries is reported to be one of the Top 5 producers in China of spherical graphite production and one of the top producers in the world.
Graphex has been operating in the graphite processing business in China since 2013. Its processing facilities in China's Heilongjiang Province are right next to one of the largest flake graphite source in the world: But now, it has an answer to North America's dependence problem: Graphex says it's gearing up to build a bridge for this graphite that leads back home.
This isn't a brand new junior miner with a lot left to prove to investors. Graphex already has long-term contracts with state owned mines and offtake agreements with major manufacturers along the battery and EV supply chain.
Now, with Graphex already expecting double-digit growth, it's not only working on a major expansion of production… It's working to bring its processing technology to North America, too.
According to Graphex executives, the company is producing 10,000 metric tons of spherical graphite, representing around 5% of China's total spherical graphite production. It plans to expand that production to 40,000 metric tons over the next three years.
On January 7, 2022, Graphex announced plans to build a new graphite processing facility in Michigan to support American EV battery production, signing an exclusive MOU with Emerald Energy Solutions LLC. A final location decision is expected by the end of this month, and the company expects that the plant could be operational by the second quarter of next year, with an initial capacity of 10,000 metric tons per annum (TPA) of coated spherical graphite–the kind specifically used in EV batteries.
Plans are to ramp that up to 20,000 TPA to meet soaring demand. To be clear… Graphex has already positioned itself as a vertical power house in the graphite supply chain. An international company with their own capabilities to process at their own facilities in China, their own export license for these materials and a building their own final stage production facility in the US.
A Critical Ramp-Up at the Start of a Supercycle
Graphex margins so far look great to us, and that is what we'd expect when you have veterans in the field.
In 2021, Graphex (GRFXY) reported 28% margins and $51 million in revenues. With an expansion in China underway, potential partnerships with global graphite producers for more localized raw material and plans afoot to build a new processing facility in the United States, the timing of the opportunity could be critical for shareholders. .
Bringing all of this technology home is a win-win situation. For North American manufacturers, it could save tons of money at a time when rising prices for battery raw materials and disrupted supply chains for final processed materials are making things difficult.
With no current operational processing facilities in North America, graphite miners currently don't have the proven capabilities to upgrade from flake graphite to uncoated or coated spherical graphite–the kind that is ready for EV battery usage. Graphex has the proven capabilities to help fill that void on that lucrative supply chain, raw to final battery grade material costs range from roughly $700 to over $20,000 per metric ton.
Potentially very lucrative indeed….
Beyond Michigan, Graphex (GRFXY) may have longer-term plans to partner with auto supply chain companies for the production of coated spherical graphite, with downstream expansion into anode and battery production as well as to partner with other global raw graphite miners to help localize and solve supply chain issues.
The world hasn't seen a commodities supercycle like this… And the current events are sending an already clear supercycle into what could become megacycle territory.
While China has traditionally supplied some 70% of the graphite we use, as of the end of 2021, new data shows that it has now secured over 80% of that market share. And one of the top 5 in China is the same company that is planning to bring it all home to America.
This isn't an easy game for new entrants because graphite is a complicated endeavor underpinning a $3-trillion EV industry and what could be a vastly bigger energy storage industry.
Other companies that could be impacted by the commodity supercycle:
Lithium Americas Corp. (LAC) is one of North America's most important and successful pure-play lithium companies, making it a key frontrunner in the commodity price boom. With two world-class lithium projects in Argentina and Nevada, Lithium Americas is well-positioned to ride the wave of growing lithium demand in the years to come.
It's not ignoring the growing demand from investors for responsible and sustainable mining, either. In fact, one of its primary goals is to create a positive impact on society and the environment through its projects.
Turquoise Hill Resources Ltd. (TRQ) is another major miner in Canada's resource and mineral industry. It is a major producer of coal and zinc, two resources with distinctly different futures. While headlines are already touting the end of coal, zinc is a mineral that will play a key role in the future of energy for years and years to come. And due in part to ongoing geopolitical conflicts, zinc has seen its price soar on fears of a looming supply squeeze.
Teck Resources (TECK) could be one of the best-diversified miners out there. And in times like these, that's great news. With a broad portfolio of Copper, Zinc, Energy, Gold, Silver and Molybdenum assets, Teck is well positioned to capitalize on the commodity supercycle. With its free cash flow and a lower volatility outlook for base metals in combination with a growing push for copper and zinc to create batteries, Teck could emerge as one of the year's most exciting miners, especially as metals prices continue to soar.
And who could forget about Tesla Inc. (TSLA)? In any discussion concerning commodities or energy, it's impossible to ignore Tesla's growing influence. Elon Musk is truly a visionary of the times. In fact, when Tesla released the first Roadster back in 2008, people were laughing at first-gen EVs. From his electric vehicle innovations and space ambitions to his forward-thinking approach to cryptocurrencies, Elon Musk may well become the first trillionaire, and Tesla shareholders are set to ride the wave. Tesla's stock price has had a turbulent year. The company has seen its share price fall from $1200 at the beginning of 2022 to its current price of just under $800.
Celestica (CLS) is a key company in the lithium boom due to is role as one of the top manufacturers of electronics in the Americas. Celestica's wide range of products includes but is not limited to communications solutions, enterprise and cloud services, aerospace and defense products, renewable energy and enough health technology.
Thanks to its exposure to the renewable energy market, Celestica's future is tied hand-in-hand with the green energy boom that's sweeping the world at the moment. It helps build smart and efficient products that integrate the latest in power generation, conversion and management technology to deliver smarter, more efficient grid and off-grid applications.
By. Josh Owens, OilPrice.com / FN Media Group, LLC
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