On Thursday, Elon Musk announced that global supply chain shortages will likely move from semiconductors to battery cells.
It’s no secret that the electric vehicle market is booming. Global sales of battery EVs increased from 2.1 million in 2020 to 4.5 million in 2021, according to a report by LMC Automotive. EVs also tripled their pre-pandemic market share from 2019, making up 6.3% of global vehicle sales in 2021.
Although the EV market is valued at $3-trillion, the vehicles themselves require batteries predominantly made from 20-30% graphite, a material that is becoming more and more scarce. As the EV market continues to explode, a graphite supply chain that is heavily dependent on China poses a potentially catastrophic shortage for the future.
China currently produces 70 to 80% of the world’s graphite and 100% of the natural graphite used in lithium-ion batteries (LiBs). In addition to the much sought-after “lithium-a”, batteries require even more graphite, the metal responsible for batteries not breaking down.
Despite the demand for graphite, the last time the US produced graphite was decades ago. President Joe Biden has urged US-based battery and car companies to ease trade restrictions otherwise risk impacting the electric vehicle market. Producers who have tried to break into the market have finally started building new productions facilities in the US and Canada, however, they are still years away from production.
The demand for graphite isn’t just speculation, either. According to Suzanne Shaw, principal analyst and lead graphite expert, the average value of “natural flake” graphite skyrocketed 25% between May 2021 and December 2021. Further, Benchmark Mineral Intelligence priced graphite at $650 per tonne, up from $540 per ton year-over-year.
Although 2021 was evidently a huge year for graphite, 2022 is proving to also be a significant time for the metal. As China predominantly uses coal to provide energy, its power rationing due to decreased coal supplies could also continue to be a problem well into 2022.
“The graphite market is tightening, especially for grades that are suitable for use in batteries as demand rises robustly,” Shaw told Market Intelligence. “In the short term, there is room for Chinese producers to further increase production to meet capacity and alleviate some of the gap, but we believe that a tightening market will increase prices in the coming years and encourage several new producers to come online outside China by the middle of the decade.”
At the end of 2020, analysts expected battery-driven graphite demand to continue rising in accordance with increased EV sales, with growth opportunities for both synthetic and natural graphite.
In 2022, Wood Mackenzie is expecting to see significant growth in batteries, while most traditional steel-based applications will see much slower growth because of slowdown in the Chinese market.
“The exception is electric arc furnace (EAF) steel electrodes, which will continue to see growth with the shift to EAF steel methods in China, India and other Asian countries,” Shaw told Investing News.
In 2022, demand for batteries is expected to rise across all the main regions, particularly in the China region. “Overall, we expect the total lithium-ion battery market to grow by 35% in 2022 to 602 gigawatt hours,” Shaw said. “Such large growth will allow room for significant rises in both natural and synthetic graphite.”