https://oilprice.com/-By Josh Owens
Key battery metals are facing a shortage as the Ukraine-Russia war heats up
An already voracious commodity supercycle is now witnessing even greater momentum amid fears of major supply-chain disruption and fallout from Russia’s war on Ukraine 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. Now, those fears have been compounded.
With EV sales expected to double this year, auto giants are desperate to avoid battery supply chain disruptions and soaring costs of raw materials.
And the supply chain for all of these battery materials are now a matter of national interest for the United States government. The Biden Administration has been very clear about their desire and push towards a more robust US based EV supply chain.
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 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.
That puts the onus–and what could be a major opportunity–on graphite miners. Compounding that is the fact that once the graphite is out of the ground, is when the specialized skill and value addition comes into play. Battery grade graphite anode material is complicated to process, especially at scale, with significant barriers to entry.
This may provide a major opportunity for one of the world’s top graphite processing companies, Graphex Group Ltd (OTC: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.
That could make it a critical bridge between the necessary current scale of Asian graphite and the United States, and more importantly … a key potential step in reducing North America’s battery material dependence by localizing the final processing for the growing EV battery manufacturers building factories in the US.
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.
It’s simple: Graphite makes up between20%-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, approximately13 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 and 70% of Mined Graphite Comes from China: Graphex Has a Solution
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 (OTC: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 (OTC: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.
One of the most important aspects from our perspective is that all of the Graphex processing technology is not only protected by patents–23 in total–covering everything from production methods and equipment design to environmental protection and graphene applications… But the barrier to entry for new local manufacturers can take many years to get past QA testing. Over the last 10 years Graphex has proven production and quality at scale.
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 (OTC: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 Russia-Ukraine war is sending an already clear supercycle into what could become megacycle territory, from oil and gas, grains, and precious metals to industrial materials, and specifically battery materials that were already staring at a supply squeeze.
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. We’re looking for the veterans, like Graphex– with patents, margins, major expansion plans underway, and what could be the critical bridge to raw material at scale to deliver current supply today as well as help shape the industry’s future into tomorrow.
Other companies that could be impacted by the commodity supercycle:
Lithium Americas Corp. (NYSE:LAC, TSX: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 already raised nearly a billion dollars in equity and debt, showing that investors have a ton of interest in the company’s ambitious plans, and it will likely continue its promising growth and expansion for years to come. Especially if lithium prices continue to soar.
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. This includes cleaner mining tech, strong workplace safety practices, a range of opportunities for employees, and strong relationships with local governments to ensure that not only are its employees being taken care of, but locals as well.
Turquoise Hill Resources Ltd. (NYSE:TRQ, TSX: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 the ongoing conflict in Ukraine, zinc has seen its price soar on fears of a looming supply squeeze.
In addition to its zinc operations, Turquoise Hill is also a significant producer of Uranium. Uranium is a key material in the production of nuclear energy, which many analysts are suggesting could be a major component in the global transition to cleaner energy. While the mineral has not seen significant price action in recent years, there are a number of new projects set to come online across the globe in the medium term, which could be a boon to Turquoise Hill, especially as commodity prices continue to climb.
Teck Resources (NYSE:TECK, TSX: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.
Teck has had a great year, climbing from just $28 in January, to today’s price of $42, representing a 44% return. In addition to its positive trajectory, the company has seen a fair amount of insider buying, which tells shareholders that the management team is serious about continuing to add shareholder value. In addition to insider buying, Teck has been added to a number of hedge fund portfolios as well, suggesting that not only do insiders believe in the company, but also the smart money that’s really driving the markets. And it’s easy to see why. Even with its share price soaring, it’s still at a P/E ratio of 10.13, with some saying it’s still significantly undervalued.
And who could forget about Tesla Inc. (NASDAQ: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.
Since then, Musk has transformed how energy is not only gathered, but stored, as well. Tesla has even paving the way for new lithium extraction techniques and pushing the limits of technological know-how to reduce its dependency on cobalt, an industry synonymous with human rights violations and conflict.
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. But some analysts are predicting that the dramatic surge in oil prices, and by extension, gasoline prices could result in demand destruction as consumers finally make the switch to electric vehicles. And that’s great for Tesla.
Celestica (NYSE:CLS, TSX: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 for the world’s leading energy equipment manufacturers and developers.
Suncor (NYSE:SU, TSX:SU) is another company that could benefit from the rise in commodity prices. Oil, in particular. In fact, it’s just touched a 52-week high, and if prices continue to climb, so might its stock price. And fun fact, Canada is one of America’s primary oil suppliers. Not only that, it’s willing to ramp up supply to help offset the lost crude from the United States’ import ban on Russian oil.
Suncor has seen its stock price rise by 24% already this year. Not only that, it packs a noteworthy dividend yield of 4.15%. The kicker here is that analysts see oil prices continuing to increase in the short-to-medium term, meaning Suncor’s share price has some major upside potential still.
By. Josh Owens
**IMPORTANT! BY READING OUR CONTENT YOU EXPLICITLY AGREE TO THE FOLLOWING. PLEASE READ
This publication contains forward-looking information which is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ from those projected in the forward-looking statements. Forward looking statements in this publication include that the global energy transition will continue as anticipated and that electric vehicles will continue to grow in market share and acceptance; that demand for electric vehicle batteries and the component materials and minerals used to produce electric vehicle batteries will continue to grow significantly; that the market for graphite and related products will continue to expand and achieve double digit growth in the next several years ;that there will be shortages in China, U.S. and globally of the graphite necessary to produce electric vehicle batteries; that Graphex Group Limited (the “Company”) can leverage its existing operations and reputation in China to capture market share of global graphite demand; that the Company can expand its business operations to the U.S. and European markets and gain significant market share for the supply of graphite for electric vehicle batteries; that the Company can leverage its proximity to graphite mines to expand its operations and capture market share for global graphite demand; that the Company can achieve its business plans and objectives as anticipated. These forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Risks that could change or prevent these statements from coming to fruition include that the global energy transition may not continue as anticipated and that other types of alternative energy vehicles may be developed and gain market share over current types of electric vehicles; that demand for electric vehicle batteries as currently produced and the component materials and minerals used to currently produce electric vehicle batteries may be less than expected for various reasons including the development of alternative materials and technologies; that the market for graphite and related products may not expand and achieve growth as anticipated; that for various reasons, including production of graphite or alternative technologies by other competitors of the Company, there may not be shortages of or increases in demand for graphite in China, U.S. and/or globally as expected or at all; that the Company may be unable to leverage its existing operations and reputation in China to capture substantial market share of global graphite demand; that the Company may be unsuccessful in the expansion of its business operations to the U.S. and European markets and fail to gain significant market share for the supply of graphite for electric vehicle batteries in China and/or globally; that the Company may be unable to leverage its proximity to graphite mines to expand its operations and capture market share for domestic and global graphite demand; that the business of the Company may be unsuccessful for various reasons. The forward-looking information contained herein is given as of the date hereof and we assume no responsibility to update or revise such information to reflect new events or circumstances, except as required by law.
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