Graphite guide: why fire resistance and not electric cars may drive these stocks
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While electric cars take the spotlight as the big driver of battery metals such as lithium and cobalt, a very different application may turn out to be the major use for graphite.
Investors often class graphite as a battery metal (even though it’s made of carbon) because lithium-ion batteries require twice as much graphite as lithium.
But graphite’s qualities as a fire suppressant — particularly in building materials — may be a far bigger driver of demand.
Scroll down for a list of ASX stocks with exposure to graphite.
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.
Traditionally, the graphite industry’s bread and butter has been its use in refractory (or “heat-resistant”) bricks, which line the inside of blast furnaces to protect them from the heat generated in steelmaking.
Now graphite’s unique ability to withstand extreme heat and prevent fire from spreading is opening up many new applications.
Demand for “expandable graphite” is growing much more quickly than expected.
One major application is building safety — driven by disasters such as the London Grenfell Tower tragedy and China’s push for flame-retardant building materials following an explosion at the Tianjin Port in December 2015.
Annually, China needs 40 million tonnes of flame-retardant building materials — which will contain 5 per cent expandable graphite.
That’s 2 million tonnes of expandable graphite required just by China’s construction industry.
“To put this level of graphite demand in perspective, it is more than ten times greater than existing natural graphite demand from the lithium ion battery industry,” says Graphex Mining (ASX:GPX) managing director Phil Hoskins.
“Most commodity analysts aren’t predicting battery graphite demand to reach this level until 2025-2030.”
Major battery makers such as BYD and Panasonic have very specific quality requirements for their batteries and industry watchers see that market as hard to break into given China is the main producer of spherical graphite.
Spherical graphite, processed from natural or fine flake graphite, is used in the anodes of lithium ion batteries.
Anode-grade graphite is forecast to soon be in over-supply which will keep prices low.
But demand for graphite as a flame retardant is only set to increase.
Fire safety is rapidly becoming a global issue in commercial and residential construction following the Grenfell Tower fire in June last year that killed 71 Londoners.
The building’s cladding is believed to have contributed to the rapid spread of the fire that gutted the 24-storey building in west London.
Similar fires have occurred in Australia and the United Arab Emirates.
New legislation in China, the European Union, Japan and Korea has either required flame retardants in building codes and/or banned brominated and asbestos-based flame retardants.
Australia is also placing restrictions on the use of non-flame retardant materials in aluminium cladding on buildings.
“The Grenfell Tower fire that occurred during 2017 has put flame retardant news at the front of everyone’s minds,” Mr Hoskins told Stockhead.
“I think countries like the UK, Australia, even the United Arab Emirates – Dubai has had a number of fires blamed on flammable cladding – they’re all playing catch up to the Chinese on regulatory policy.
“I think it will revolutionise the industry, it’s not just going to be a Chinese thing, it will become a global move.”
Expandable graphite has a number of other end uses including graphite foil for electronic devices, graphite paper, gasket and seals.
Shortfall in supply
Global production of graphite is a long way from meeting demand.
Total global production of flake graphite in 2016 was about 860,000 tonnes — and not all of this material is able to generate expandable graphite.
Expandable graphite requires coarse flake, and historically China has accounted for about 70 per cent of supply.
However, China’s coarse flake graphite reserves have largely diminished and supply is also under threat by environmental restrictions forcing mine closures.
East Africa a popular graphite destination
Around half the ASX-listed graphite players tracked by Stockhead have projects in Africa, with the majority located in East Africa – including Graphex’s Chilalo project in Tanzania.
Here is a list of ASX stocks with exposure to graphite:
(Scroll or swipe table to see more.)
*BEM listed on 19th January 2018 – closing share price from that date
***QGL is under administration
The region’s popularity is down to the thick, coarse flake graphite it hosts.
However, there aren’t that many ASX-listed players targeting the expandable graphite market, according to Mr Hoskins.
And interest in the companies that are chasing that market is growing, albeit at a slower pace than other commodities.
“We haven’t seen it filter through as yet into strategic investments like we’ve seen in lithium and cobalt, but the interest is definitely there from people in the market,” Mr Hoskins said.
The biggest mover among the East African graphite players is Bass Metals (ASX:BSM), which is up 200 per cent in the past year at 3c.
Earlier in April the company completed the recommissioning of its Graphmada graphite mine in Madagascar.
The mine will eventually produce 20,000 tonnes per annum of graphite concentrate when stage two is complete and Bass is assessing its options for the production of expandable graphite.
Other companies that could potentially supply the expandable graphite market include Triton Minerals (ASX:TON), Volt Resources (ASX:VRC), Walkabout Resources (ASX:WKT) and Kibaran Resources (ASX:KNL). Triton has a project in Mozambique, while the others have projects in Tanzania.