Rapidly rising demand should put graphite on investors' radar
Comment of the Day

February 02 2012

Commentary by David Fuller

Rapidly rising demand should put graphite on investors' radar

This article by Sally Lowder for Mineweb dated January 26 th is one of a number of articles I have seen recently extolling the investment potential of graphite. Here is a section:
RF: The most important applications in energy storage are lithium-ion batteries and fuel cells. A lithium-ion battery needs 20 to 30 times more graphite by weight than lithium. Based on that, the number of end user transactions, the amount of capital and the level of interest in the graphite space should be about 20 to 30 times more than in the lithium space, but graphite has been flying under the radar.

TCMR: Maybe that's partly because the lithium-ion battery isn't called the graphite-lithium-ion battery.

RF: True. These batteries have two parts-the cathode and the anode. Lithium is the cathode. The anode is graphite. It's become clear that these batteries will power not only electric vehicles but also our tools, our phones, our laptops, our electronics, our toys. They all use these batteries, and that's going to be a big demand driver.

TCMR: How about in fuel cells?

RF: In the same way, graphite is used in plating and is an important component of a fuel cell. A lot of the same things I said about lithium-ion batteries also apply to vanadium redox batteries. Vanadium's been getting a lot of attention. It takes a lot of graphite to produce these batteries as well.

TCMR: Are the batteries used in vehicles such as the Chevy Volt, Nissan Leaf and Tesla Roadster lithium-ion-graphite batteries?

RF: Yes. There was some debate whether a nickel-metal hydride battery would be the key driver for electric vehicles, and the original Volt was based on that technology. But the Leaf, the new hatchback version of the Volt, and the Tesla are now all based on the lithium-ion-graphite battery.

David Fuller's view As a purer form of carbon than coal, it would not be correct to describe graphite as rare. However, technological innovation is resulting in a number of additional sources of demand and it may take time for supply to catch up. The penetration of lithium ion batteries in the consumer electronics, automobile and industrial sectors suggests demand for graphite is on a secular upward trajectory.

I last posted a review of battery manufacturers and lithium miners in Comment of the Day on August 18th. This highly informative report from Deutsche Bank covering the lithium ion battery sector and focusing on Japanese companies may also be of interest and appeared in Comment of the Day on January 22nd 2011.

Many commentators expect graphene will eventually replace silicon in computer chips. It also has a number of other potential applications in the materials, defence, construction and electronics sectors. Mass production is still evolving and limited to a relatively small number of companies. Graphene is still one of the most expensive materials to manufacture. However, costs can be expected to come down as an increasing amount of capital is devoted to the sector.

Graphene-info.com contains a list of companies currently producing grapheme. Most are unlisted. GrapheneTimes.com contains a number of interesting articles on the subject. Of the companies that are stock market listed most are in the carbon fibre business where graphite represents a portion of their income. (Also see Comment of the Day on June 15 th 2011). Here is a review of some of the better performers.

US listed, Hexcel Corp has trended consistently higher since early 2009 and a sustained move below the 200-day MA would be required to begin to question medium-term scope for additional upside.

GrafTech International has been building support in the region of the 2010 low since August and broke out of the five-month base last week. A sustained move below $15 would be required to check potential for some additional upside.

German listed, SGL Carbon remains in a relatively consistent uptrend. It pulled back sharply in December, following a retest of the 2008 peak, and is currently ranging in the region of the 200-day MA. A sustained move below €35.80 would be required to question medium-term scope for additional upside.

Japanese listed, Toray Industries is a relative outperformer in its domestic market and is currently rallying from the lower side of a yearlong range. A sustained move below ¥530 would be required to question medium-term scope for additional higher to lateral ranging.

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