Commentary: As graphite prices stumble, more is needed for new operations to succeed

The latest China monthly graphite export data support the idea of some graphite price stabilization. Natural graphite prices trending lower would bolster their competitiveness against synthetic graphite and accelerate demand.

Graphite prices have developed as we projected earlier, with natural flake graphite prices continuing their decline through 2014, and heading for an average of US$840 per tonne. There is a tendency to stabilize but this is not to say that prices have bottomed out yet (see bar chart below).

The moderation is more a function of policy adjustments by the Chinese government, as it begins to realize that its attempts to control prices are damaging Chinese industry — notwithstanding genuine environmental concerns.

Western supply growth means there are few underlying market forces to hold natural graphite prices at this level. And the medium trend in the outlook through 2015 and beyond is negative for most graphite product prices, including prices for coated, natural spherical flake graphite.

Weaker natural graphite prices are a challenge for most of the many new graphite projects under development by graphite mining juniors. At TRU Group, we believe that only a handful of the projects are potentially viable operations, but even they cannot get needed financing, because the owner-junior-miner business models are seen by investors as unsound.

Many of the graphite juniors appear by industry specialists on the one hand to be preoccupied with geology and the other to be caught up in the hype over the Tesla Motors plan to build a lithium-battery plant in Nevada.

Indeed, some claim to be near production without having scientifically characterized the graphite they do have.

The companies would do better to spend more effort on the critical operational success matters, such as high-tech graphite science and engineering, and building a strategic competitive posture.

In reality, investors and Tesla most likely want the same: a technically robust operation with a leading-edge, diversified end-product offering, and a highly competitive American-centred business model.

— Based in Tucson, Arizona, Edward Anderson is president and CEO of engineering consultants TRU Group Inc., which has offices in Tucson and Toronto.

TRU’s graphite-graphene team consists of a dozen experts, including top management and senior engineers who have each worked for more than a decade in management and research and development for high-tech graphite companies such as GrafTech International, Nacional de Grafite Brazil, Poco USA, and Superior Graphite USA and Superior Graphite China. Visit www.trugroup.com for more information.