How ASX graphite producers could win from Donald Trump’s China tariffs

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ASX graphite stocks could get a much-needed filip next year when Chinese exporters of the battery metal get hit with a 25 per cent US tariff.

Graphite was among Chinese products targeted by the US for an initial 10 per cent tax until the end of this year — followed by a further 15 per cent tax.

That’s good news for Australian graphite producers because it means US steel-makers, battery and car manufacturers may look elsewhere for supply.

>> Scroll down for a list of ASX stocks with graphite exposure, courtesy of leading ASX data provider MakCorp

The US does not produce any graphite and has to import its supplies.

Last year, about 95 US companies consumed 24,000 tons of natural graphite worth $US43 million, and imports totalled 50,000 tons, according to the US Geological Survey.

The major uses of natural graphite include brake linings, lubricants, powdered metals, refractory applications and steel-making.

China, which produced around 67 per cent of the world’s graphite last year, is the biggest supplier to the US, accounting for 35 per cent.

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While US manufacturers will be on the hunt for new supply — so will Chinese manufactures because of dwindling graphite production resulting from environmental crackdowns on illegal and polluting operations.

Demand for graphite is primarily driven by the steel market, but the rapid rate of growth in the lithium-ion battery industry is driving demand for both natural flake graphite and synthetic graphite.

Each lithium-ion battery requires 60kg of graphite – more than twice the amount of lithium needed.

Demand soaring

Market forecaster Roskill predicts graphite demand from battery makers will grow by 23-27 per cent each year through to 2028.

Demand for “expandable graphite” is also growing much more quickly than expected.

When treated with acid and heat, graphite flakes split apart and increase in volume by up to 300 times. This “expandable graphite” can be pressed into sheets and used for heat and fire protection in applications ranging from building materials to consumer electronics and fuel cells.

Fire safety is rapidly becoming a global issue in commercial and residential construction – driven by disasters such as the London Grenfell Tower tragedy and an explosion at China’s Tianjin Port in December 2015.

Major graphite producer Syrah Resources (ASX:SYR) sees China becoming a net importer of graphite in 2019 and there being a shortfall of the commodity by 2020.

Syrah, which began production last November, has had a rough time of it lately, facing problems like lower-than-expected production and a fire at the processing plant at its graphite operation in Mozambique.

This has seen the major slide almost 70 per cent since the start of the year, from a $1.7 billion company at $4.95 per share to $523,000 at a 52-week low share price of $1.54.

Over the past six months Syrah has dropped nearly 51 per cent to trade at around $1.63.

A number of ASX-listed players see President’s Trump’s trade war with China as an ideal opportunity.

Here’s a list of ASX stocks with graphite exposure, courtesy of leading ASX data provider MakCorp

Swipe or scroll to reveal full table. Click headings to sort

Tom Revy, the boss of graphite explorer BlackEarth Minerals (ASX:BEM), says the US levy on graphite is likely to make dominant Chinese suppliers, who are already suffering the pressures of increasing costs and environmental concerns, even less competitive.

“The US has historically been a big consumer of Chinese graphite and value-added graphite products, so both countries are likely to be looking elsewhere for raw material supply – a great position for the next generation of graphite producers like BlackEarth,” he told Stockhead.

BlackEarth is exploring for graphite at its Maniry project in southern Madagascar, where it recently reported high grades of up to 48 per cent graphite from rock samples.

The company is working on having a scoping study completed by the end of this year.

Like the majority of other graphite players, BlackEarth’s share price has lost ground in the past six months — down nearly 17 per cent to 12.5c,

Novonix (ASX:NVX), meanwhile, said earlier this year that the tariffs would be “positive” for its graphite-based anode materials business, which is headquartered in the US, and its graphite deposit in Queensland.

The company began making battery cells at its pilot factory in Nova Scotia, Canada in July.

Novonix is co-owner of the Tennessee-headquartered PUREgraphite joint venture, which develops, manufactures and sells high performance anode materials into the global lithium-ion battery market.

The anode is the positive terminal of a battery that electricity flows into.

Novonix also owns the Mount Dromedary graphite deposit near Cloncurry in northwest Queensland and is considering bringing in a partner or divesting the project.

The company’s share price is down over 39 per cent over the past six months and is trading at 54c.

Prices set to jump

Another Mozambique-focused graphite explorer, Battery Minerals (ASX:BAT), says Benchmark Mineral Intelligence is forecasting significant increases in graphite prices in the medium-term.

The company’s financial advisors appointed Benchmark to provide a graphite pricing forecast to be used by a prospective lending syndicate.

Benchmark’s forecast indicates that the price of Battery Minerals’ Montepuez graphite has the potential to appreciate from the current ex-China price of $US950 ($1337) per tonne to more than $US1500 per tonne over the first 10 years of operations.

Battery Minerals was knocked down heavily in June when Resource Capital Fund pulled the plug on a $US30 million funding facility for the Montepuez project.

The stock is down 60 per cent over the past six months to trade at 2.7c.

Battery Minerals is advancing construction of the project and is working to lock in the necessary funding at the same time.

Meanwhile, Kibaran Resources (ASX:KNL) is one of few companies in positive territory at the moment – having gained over 39 per cent in the last six months.

The company told investors on Monday the results of an optimisation study using Kibaran’s proprietary purification process called “EcoGraf” supports the development of a stage one plant producing 3000 tonnes each year of battery (spherical) graphite and fines.

Treatment of graphite from Kibaran’s Epanko project in Tanzania, including battery (spherical) graphite and fines from spheronization (a low value by-product) produced up to 99.98 per cent carbon.

Graphite from 10 other global sources also produced up to 99.98 per cent carbon.

Kibaran’s share price climbed to an intra-day high of 19.5c on Monday.

The author of this article has a shareholding in Novonix.

Stockhead is proud to use MakCorp as a provider of great value, accurate and reliable data on ASX-listed mining stocks. For more information head to MakCorp’s website.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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