In a recent interview, Stephen Riddle, CEO of Asbury Carbons, cleared the smoke to give graphite investors a better understanding of what synthetic graphite is and what role it plays in the graphite market as a whole.
Graphite Investing News (GIN): At the Industrial Minerals Graphite Conference in London, you mentioned that the graphite market is misunderstood. Can you help our readers better understand it?
Stephen Riddle (SR): The first misunderstanding in the graphite market is what I call graphite — the term graphite. It’s quite an umbrella term. Under the graphite umbrella you’ve got all these different types of graphite, both synthetic and natural, that are used in their own applications and do not compete. They have no relationship except they’re both called graphite.
GIN: There is quite a disconnect between the natural graphite market and the synthetic graphite market. Can you help our audience understand synthetic graphite?
SR: First, make sure you understand that people talk about the sporting goods industry — graphite golf clubs, tennis rackets, fishing poles. The sporting goods industry calls it graphite, but the aircraft and the automotive industries and the major users call it carbon fiber.
Don’t mix that market into natural or any form of graphite. That’s carbon fiber. That’s nothing to do with the natural graphite market.
GIN: Sounds like a good starting point. What else should investors know?
SR: The main thing to know about synthetic graphite is that there are two types of synthetic graphite. The largest type of synthetic graphite is what we call “graphite electrodes.” And that’s made from petroleum coke primarily by public companies such as GrafTech International (NYSE:GTI), SGL, Showa Denko (TSE:4004), SEC out of Japan and Toyo Tanso (TSE:5310).
GIN: What are these electrodes used for?
SR: They’re used out in the electric-arc furnaces. Their only application is in electric-arc furnaces for melting steel, melting iron and producing ferroalloys.
GIN: I see. And that is something that natural graphite would never be used for?
SR: No, natural graphite would not be a precursor. The only relationship between the two is that they’re both called “graphite.”
GIN: And these electrodes, they take up a large chunk of the market — I believe you said roughly 37 percent of the graphite market as a whole?
SR: Yes. And dollar-wise that’s about $5 or $5.5 billion per year.
GIN: What about the second type of synthetic graphite?
SR: The second type is where you make synthetic graphite blocks, which we typically call “isotropic graphite.”
And that’s what’s used in the solar industry. That, again, is a manmade product made basically the same way as electrodes are made using petroleum coke. The only difference is they use a different structure than petroleum coke. Because they want the structure of the graphite to be very isotropic, they use an isotropic-type coke and in making electrodes they use an anisotropic coke. But the process is exactly the same.
GIN: How about price-wise? I assume synthetic graphite is a little more expensive than natural graphite because it is manufactured.
SR: Correct. But now you made these two different types of synthetic graphite: isotropic (the blocks) and anisotropic (the electrodes). However, before either of these products can be used by customers, they have to be machined.
Well, when you machine these electrodes or blocks, you end up with granular graphite or graphite dust. That is what we in the industry call “secondary synthetic graphite.”
GIN: Why is it called secondary synthetic graphite?
SR: The reason we call it “secondary” is because it’s a by-product. So the availability of that material is dependent on the primary product: the graphite electrodes or graphite specialties that are demanded each year.
GIN: How does that affect the supply?
SR: There isn’t unlimited supply of secondary because there isn’t unlimited demand for the primary product.
GIN: And this secondary synthetic competes with natural graphite?
SR: Yes, one form of synthetic graphite powder competes with natural flake in certain applications. And it’s a low-cost material because it’s a by-product; the electrode manufacturers have to get rid of it.
Secondary synthetic graphite does compete with natural flake. It competes in things like brake linings, lubricants and carbon brush. So it can be at times a competing product. Fortunately for natural flake graphite, it doesn’t compete in the biggest application refractories.
GIN: Now that we know about secondary synthetic, is there such a thing as primary synthetic?
SR: Primary synthetic is a manmade synthetic graphite that is made to be a granular powder and is used in the lithium-ion battery market when anodes are made.
Primary synthetic is expensive to make because you’re making it just like an electrode except you’re not making a block, you’re just making a powder. So that is going to cost more than secondary synthetic because it costs you almost the same amount as making an electrode.
GIN: OK. So in terms of costs relative to natural graphite, what are we looking at for that synthetic primary and secondary graphite?
SR: Today, what they’re doing when they get to the lithium-ion battery is making special, hybrid forms of synthetic graphite. Because they’re trying to create certain properties in that battery, it’s not a simple synthetic graphite.
You can make synthetic graphite for probably about double the price of natural, but that quality is not good enough for lithium-ion batteries.
But when you’re talking about the companies that are making the high-end synthetic graphite for lithium-ion batteries, they’re picking out very, very special precursors. They’re doing very special heat-treating processes and then special milling to create a special shape with a certain density. That material is a lot more expensive to make. It’s probably costing them five to 10 times what it costs to make natural graphite.
GIN: Well, it seems like if the demand is there, then synthetic graphite is a good market.
SR: Yes, and currently it holds a large percentage of the high-end lithium-ion batteries, such as those used in electric vehicles.
Since synthetic graphite is such a controlled product, the battery companies would prefer to use, in the short term at least, the high-end, controlled product for the anode because it’s not their highest cost in the battery and they just figure they’ll have less issues with inconsistency by using the synthetic today.
That being said, if natural graphite wants to compete for this market, it is going to have to prove to high-end battery manufacturers that it is a consistent material and that over time it can make a very good-quality anode. Natural graphite will be lower cost than synthetic, so if they can prove its consistency, then on an equal price basis, natural graphite will have a cost advantage.
GIN: Well, good luck graphite.
SR: Yes. That’s where everybody’s coming from. They just believe that natural graphite will displace synthetic because it has a cost advantage.
GIN: Do think that natural graphite will displace synthetic?
SR: I don’t think it will completely displace synthetic, but it has very good merits. The market isn’t growing as fast as people expected.
GIN: But the market does exist.
SR: Yes. It will still be there, at least for the next five, 10, maybe 15 years. I don’t have a crystal ball of what next-generation batteries are being developed that will displace this current battery technology 15 years from now. That’s the only downside risk.
GIN: Well, thank you for taking the time to speak to me.
SR: Thank you.
Securities Disclosure: I, Vivien Diniz, hold no direct investment interest in any company mentioned in this article.