China’s anode market tilts toward synthetic graphite amid supply shake

Mar 28, 2024

Producers of synthetic graphite in China have reduced their costs in part by shifting to less expensive feedstock in response to a surge in prices.

Producers in China have been producing synthetic anode material with needle coke and low sulfur petroleum coke. The former was mostly for high-end consumer electronics batteries while the latter for mid-and-low-end lithium-ion batteries.

The choice of raw materials affects the anode’s capacity, cycling behavior and power density, with needle coke more used for higher-capacity batteries production than low sulfur petroleum coke.

“Needle coke is a specialty coke produced from coking of highly aromatic fluid catalytic cracking (FCC) decant oil. The main characteristics include low thermal expansion coefficient, low porosity, low levels of sulfur and ash, high electrochemical conductivity and easy graphitization,” Fastmarkets analyst Georgi Georgiev said.

The raw materials picture started to change from the second half of 2022 due to skyrocketing low sulfur petroleum coke and needle coke prices, and concern about future supply amid expectations for soaring demand from electric vehicles and energy storage, according to sources.

“We saw a trend of jumping coke prices between 2021 and 2022 due to robust demand for new energy vehicles. Prices of needle coke and low sulfur petroleum coke increased by 100% to 11,000 yuan [$1,531] per tonne and 191% to 7,400 yuan per tonne respectively from the start of 2021 to July of 2022,” a trader of petroleum coke in China said.

Such high prices incentivized producers to try cheaper alternatives, such as low sulfur sponge coke, a feedstock usually used in the aluminium industry with a sulfur content of 3-3.5% max, according to Yury Burenko, trading director at DYM Resources.

“Sponge coke is characterized by high porosity, which gives it a sponge-like appearance. Typically, sponge coke is a calcinable green petcoke with sulfur content around 3%, low ash and minimal metal content,” Georgiev said. “This material has some similar properties to needle coke such as a low thermal expansion coefficient and high resistance to thermal shocks, yet it is traded at lower price compared to needle coke, which has made it economically attractive to the battery anode industry.”

Anode prices have been falling in 2023, which has led major anode producers to increasingly use mid-sulfur petroleum coke to keep costs down, according to a producer of petroleum coke in China. Coke makes up 33% of the cost of anode production.

“While there is some consumption of needle coke in lithium-ion batteries in China, its share could be on the decrease due to high costs, while regular petroleum coke usage will increase in the future,” a source with an anode producer in China said.

The fall in synthetic graphite prices and increased capacity in China have weighed on prices of natural graphite. One major attraction of natural graphite anode material has been its lower cost in comparison with synthetic graphite.

Fastmarkets assessed the uncoated graphite spherical 99.95% C, 15 microns, fob China market at $2,000-2,200 per tonne on July 20, 2023, down $1,100 from $3,100-3,300 per tonne on July 14, 2022.

Looking at the longer term, supply concerns around needle coke has further encouraged the use of other materials.

Global demand for synthetic graphite is expected to exceed 3 million tonnes by 2025 from 2,296,000 tonnes in 2022, with more than 80% of demand coming from electrodes and battery anodes, according to Fastmarkets analysts.

“To meet demand for synthetic graphite, around 4 million tonnes of needle coke will be needed on an annual basis in 2025, exceeding current needle coke production projections,” Georgiev said. “To fill this supply gap and to mitigate the risk of soaring prices, the synthetic graphite industry will be incentivized to consider different types of coke to substitute for needle coke feedstock.”

“The fast growth in energy storage and new energy vehicles indicate a vast opportunity for graphite anodes, which, in turn, stimulates the demand for graphite raw materials of natural and synthetic ones. The quick expansion of China’s graphitization capacity in the past couple of years means that the bottleneck for anode production could be raw materials like needle coke and petroleum coke, as well as natural graphite,” a second trader of petroleum coke in China said.

Meanwhile, the supply of needle coke and low-sulfur petroleum coke is not expected to increase in proportion to the rise in demand, according to sources.

“While China produces both oil-based and coal-based needle coke, it still depends on imported needle coke for high-end anode production, with ConocoPhilips in the UK as the major source. China imported 127,800 tonnes of oil-based needle coke in 2022, up by 99.33% on a yearly basis, among which imports from the UK accounted for 59.1%,” a source with a second anode producer said.

Imported oil-based needle coke is also used to produce graphite electrodes for electric arc furnaces, which produce steel from scrap. And this further increases demand for this scarce resource.

Therefore, the trend of decarbonization means demand for electrodes, as well as from graphite anodes, can be expected to grow in the long term, according to a graphite electrodes producer. In turn, this would provide support for needle coke prices.

However, the supply of low-sulfur coke could also be a concern for anode producers wanting to guarantee raw material security.

“Since petroleum coke is a byproduct of oil refining, coke output mainly depends on oil refinery activity. And the newly increased petroleum coke capacity in China could be dominated by large oil refining projects, focusing on processing high-sulfur crude oil, which is not suitable for anode production,” a third trader in China said.

“Elsewhere in the international market, petroleum coke mainly has a high-sulfur content for the aluminium industry,” a fourth trader of petroleum coke in China said. “The supply dynamics of China’s low-sulfur petroleum coke means that anode producers need to diversify their sources of raw materials by adding the consumption of mid-sulfur petroleum coke.”

In response to this shift towards synthetic graphite, Fastmarkets will start to price petroleum needle coke and green petroleum coke, both on an ex-works China basis, 0.5% sulfur, yuan per tonne.

Additionally, we will have a value-in-use tool for green petroleum coke to calculate higher sulfur contents from the base of 0.5% to a maximum of 2%, rising in 0.5% increments.

At this point, the synthetic graphite market is not sufficiently commoditized to be reliably priced. However, the feedstock market can be assessed rigorously and used as an indicator of the synthetic market.

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