While the staking rush for graphite has come and gone, exposing many area plays and 'pretenders' along the way, the imbalance between supply and demand continues to grow (favouring higher graphite prices).

The imbalance between supply and demand has grown because there are only a handful of companies with the potential to build economic graphite mines in the entire world.


Graphite investing has 3 key components:

1. Supply is predominantly limited to China (China produces and controls upwards of 70% of global supply). This is a very similar situation to the rare earth sector.

2. Graphite's core demand for industrial applications, including its use in steel fabrication, has been rising 5% annually over the past decade. New, green applications developed in the past 10 years have caused a surge in graphite demand and usage, resulting in higher prices and therefore more profitable margins for miners.

3. The exciting allure and unknown potential of graphene (separated layers of graphite) adds an explosive component to a commodity with an already strong supply/demand imbalance.


Graphene: The 10 Bagger Potential for Graphite

Graphene can be described as a one-atom thick layer of the layered mineral graphite. It is arguably the most exceptional material in the world. Graphene is the thinnest, lightest and one of the strongest materials in the world, resulting in an infinite number of potential applications. If there was a real life Batman, his suit would undoubtedly be made from graphene.

Graphene is harder and more resilient than diamonds, better at conducting electricity than copper and silver, potentially the number one material to conduct heat on the planet, and 300 times stronger than steel; and it is extremely flexible. Graphene's potential applications are basically limitless, with thousands upon thousands of patents being filed since its discovery in 2004. The graphene story is still in the early-stages, but it is a compelling one that gets the imagination going.

Samsung and Lockheed Martin are developing revolutionary technologies, both which utilize graphene, that could alter the makeup of the phone in your pocket or the way millions attain clean drinking water. Graphene holds tremendous potential, but much is still unknown about the viability of the technologies and applications it's being tested for.


The China Factor

You can't talk about graphite without mentioning China's leading role. Of the estimated 77 million tonnes of worldwide graphite reserves, China lays claim to 55 million of them. China is also responsible for more than 70% of the world's 1.1 million tonnes of annual production. As China's domestic consumption rises, new legislation has been introduced to conserve its graphite reserves. Similar to how China treated rare earths, it has implemented a 20% export duty on graphite, along with a 17% VAT levy.

China has also established an export licensing system, and reportedly closed numerous mines for environmental and resource protection purposes. Countries and companies know that depending on China for a commodity is never a good idea.


Graphite Today

Industrial demand for graphite is rising due primarily to infrastructure related demand from Asia and much of the emerging world.

When it comes to infrastructure, graphite is critical, as it is used to increase the carbon content of steel. This aspect of demand coincides with more traditional uses of graphite, including the auto industry, which has provided reliable, long-term demand.

The second source for graphite's increased demand, and cause of much excitement in the investment world, comes from the rising popularity of electric and hybrid-electric cars, lithium batteries, lithium-ion batteries, medical applications, cell phones, iPhones and fuel cell use for transportation applications.


Lithium Batteries

Lithium batteries should be called graphite batteries. Twenty to thirty times more graphite is used in lithium batteries than lithium itself...

The anticipated continued growth from a number of technologies, including lithium-ion batteries, fuel cells, semi-conductors, and nuclear energy, which all utilize significant amounts of graphite, has many of the world's top investors taking a closer look at the commodity.

The new, green applications have the potential to consume more graphite than all current uses combined. This is what gets graphite industry types fired up, and why so many companies around the world are hoping to define, and bring into production, the next graphite mine.

Global consumption of natural graphite took off in the early 2000's, following the advent of these new applications, along with the industrialisation of China, rising from roughly 600,000 tons in 2000 to 1.1 million tons in 2011. This led to a tripling in graphite's price, and although its value has since stabilised, demand continues to rise at an approximate annual rate of 5%.

In addition to today's current rising demand, the excitement gauge hits a new level when investors start eyeing the potential graphite demand set to be unleashed by the graphene market.


7,000 Patents, and Counting

Why is it that graphene-based applications have received over 7,000 patents in just the last five years? The U.S. Patent and Trademark Office (USPTO) confirmed recently that it has issued approximately 7,000 patents related to graphene.

In March of 2013, Samsung Electronics Co., Ltd. was awarded U.S. Patent No. 8390589 by the USPTO for the use of nanostructures in touch screen displays.

Graphene is known not only for its incomparable strength and resistance to heat, but for its versatility, especially in electronics, because it is extremely thin and bendable. It is also transparent.

The touch screens we all use today are, in many cases, the most expensive part of a smartphone. Graphene may be able to reduce costs significantly for smartphone makers. It is no coincidence that Samsung, the world's largest smartphone maker, has received over 400 patents for the use of graphene in its displays and electronics.

Lockheed Martin Corp., a prolific weapons maker for the Pentagon, believes it will be able to turn salt water into clean and drinkable water, without using power. Reuters reported the story early this spring, and the process, officials and engineers at Lockheed Martin say, would enable filter manufacturers to produce thin carbon membranes with regular holes, about a nanometer in size, that are large enough to allow water to pass through, but small enough to block the molecules of salt in seawater. Just to clarify, a nanometer is a billionth of a meter.

John Stetson, Lockheed's engineer who has been working on the concept, commented that, "It's 500 times thinner than the best filter on the market today and a thousand times stronger." And that,

"It looks like chicken wire under a microscope, if you could get an electron microscope picture of it. It's all little carbon atoms tied together in a diaphanous, smooth film that's beautiful and continuous. But it's one atom thick and it's a thousand time stronger than steel."

source: http://www.reuters.com/article/2013/03/13/us-usa-desalination-idUSBRE92C05720130313

Watch the video on graphene for an introduction to this commodity of the future:

While it's easy to see why many are excited about the potential for graphene, its real world demand, at the moment, is quite limited. Until a more long-term, concrete use for it emerges, it's best for us to stay focused on graphite's current demand and view graphene for what it is: blue sky potential.


3 Natural Forms of Graphite

Graphite occurs naturally in 3 different forms: Flake, Amorphous and Vein.

Vein graphite, although containing a very high purity, has been marginalised by its limited number of applications. It contributes less than 1% of global production, and is mined from only one operating mine in Sri Lanka.

Amorphous is the least graphitic of the three, and has purity levels ranging between 60-90%.

Flake graphite is known for having the highest purity levels - usually averaging between 85-98%.


2 Key Types of Graphite

The market for graphite exceeds one million tonnes per year. The two types are amorphous and flake (vein graphite is too rare to matter right now). Amorphous is responsible for roughly 60% of global production, while flake is responsible for approximately 39%. Flake graphite is the only type that can be upgraded to 99.9% purity, making it suitable for lithium-ion batteries and many other applications.

Currently, the global graphite market stands at roughly $13 billion, but it's poised to get much bigger.


Fuel Cells

According to the United States Geological Survey, fuel cells have the potential to consume as much graphite as all other current uses combined. Of the many applications, the proton exchange membrane technology ("PEM"), which is being developed for transport applications, uses large quantities of graphite, and could create a significant increase in demand. However, the US Department of Energy suggests that PEM cells are the most likely to be developed for use in light vehicles, buildings and smaller applications. Toyota has commented, in respect to its own fuel cell development, that "it sees a clear path to commercial production by 2015."

Any mass production of fuel cells in automobiles would be a game changer for graphite.


Where is the Flake Production?

Outside of China, flake graphite production is relatively limited. Only a handful of countries even have graphite deposits, and even less seem to be exporting large quantities. Brazil, Canada, India, Madagascar, Norway, Ukraine and Germany are the main producers of flake graphite.

Canada's graphite production has been negligible and, according to the US Geological Survey Minerals Resource Program, has averaged just over 25,000 tons per year since 2000. That's only about 6% of the 400,000 tons of global flake graphite produced each year. However, Canada's influence over the graphite market is poised to change in a big way. There are a select group of Canadian mining companies hoping to become the world's newest producer. More on this developing story over the coming weeks...

All the best with your investments,