How the exploration industry paved the future of graphite

Article courtesy of Industrial Minerals Data
By Simon Moores

Comment: A look at how the failures of graphite producers sparked price volatility and an exploration boom and yet they are set to be the main beneficiaries

The global recession, which has fuelled price volatility, an exploration boom, and a sharp rise and fall in graphite demand over the past five years has shaped not only the recent history of the industry, but the future of the market for long to come.

It has been a shock to the established order, forcing them to look longer term at both resources and more in-depth at market trends.

Graphite has historically been a very private industry with prices agreed behind closed doors between buyers and sellers. However, the surge in exploration between 2011 and 2012 has resulted in a new and important dynamic that has changed the industry’s landscape.

The exploration boom has caused the biggest upheaval in graphite since China began to export to global markets in the 1980s. The boom in new companies looking to establish mines not only uncovered an abundance of new, high quality resources worldwide, but has also threatened the existing production hierarchy.

The downside for the industry’s private producers was the global exposure it received and not just in niche industry publications like Industrial Minerals but international news organisations such as The Times, Bloomberg, Reuters, The Australian and China Daily.

An influx of new entrants inexperienced to the graphite trade meant the need for more robust pricing and market intelligence was greatly increased. Solid and reliable data was critical to the business plans companies required to attract investment.

The focus on prices was not new to the commodities world, but something graphite – which is a more specialist product than a commodity – had not experienced.

It also shone a spotlight on the failures of existing suppliers to invest in new resources, high value production techniques, and more economical mining practices – a situation which sat uncomfortably with many.

Graphite is not unique

Graphite is not unique, however. The situation the industry has experienced since 2010 is the same as the likes of lithium, rare earths and potash before it. It is also very similar to many minor metals and energy minerals such as vanadium, indium and uranium.

The sometimes blinkered arguments put forth by producers and juniors alike are also ones that have been heard before in other mineral industries. Arguments such as: ‘It’s a private industry, we don’t need any new players’ or ‘we have the biggest or best project on the planet’ will be commonly heard across all resources markets, not just graphite.

But competition should be embraced: it creates a more economical extractive industry, it encourages continual improvement on every level of the sector and, most importantly, it forces companies to look for new markets and sparks new demand.

The exploration industry has driven this development. While the vast majority of juniors will not survive, the fierce competition created from the boom has uncovered the highest grades and largest resource volumes the world never knew existed.

Simplifying it to cause and effect, it becomes apparent how the industry was to blame for the influx of exploration but how it is set to benefit.

The cause was price volatility and the effect was the exploration boom. If existing producers had been able to satisfy a surge in demand in 2011, the price increases which sparked greater volatility would not have happened.

The effect was the exploration which never would have been pursued at the intensity or to the same extent by active graphite producers; yet the irony of the situation is that they will become the main beneficiaries of this as major players filter out the best resources for their future needs.

While most juniors may not be around to see it and many existing producers of graphite may not appreciate, the exploration sector is to thank for shaping the industry’s future.

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