As China expands its battery supply chain to feed its increasing appetite for electric vehicles, its graphite and anode industry is adapting. In this environment, Inner Mongolia has become the centre of China’s anode production expansions, largely driven by low energy costs relative to other regions.
Battery anodes largely consist of natural graphite, synthetic graphite or a combination of the two. Spherical graphite, which is the battery grade form of natural graphite, is produced using flake graphite feedstock. Synthetic graphite is produced from carbonising or graphitising carbon-rich raw materials such as petroleum coke and binder at temperatures in excess of 2,000 degrees Celsius.
The synthetic graphite production process is energy intensive. For this reason, Inner Mongolia is emerging as an attractive region for production right now, with energy costs less than 0.3 RMB per kWh.
Several companies have established carbonisation and graphitisation capacities in the region. These companies are acting as tollers for material provided by major anode producers from across China.
While prices remain at high levels, margins for these tolling companies are strong, however, margins are expected to come under pressure in the coming months with lower feedstock costs from both flake graphite feedstock and needle coke pricing driving down prices.
From a demand perspective, China’s lowering of electric vehicle subsidies has placed cost pressures on material suppliers from battery producers.
When looking to supply anode material to international markets, anode producers need to take into account the robust and time-consuming qualification process followed by international battery producers. This means that only a restricted number of processors can supply anode materials outside of China’s domestic market.
An aggressive expansion of Chinese anode capacities is underway across the board, regardless of developments elsewhere. Within China demand is focused on synthetic graphite production because of its reliability, whereas in Japan and Korea the majority of battery demand growth is for natural graphite.
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