Pressures on the processing capacities of flake graphite producers in Shandong province – the second largest producing region in China – have been eased by rainfall which has improved access to water.
A drought in Pingdu county – one of two flake graphite producing areas in China’s processing capital – saw producers report problems in accessing water throughout Q2 2016.
With annual rainfall in the region falling by over 20%, there were fears that further dry weather conditions could limit supply from some of the country’s leading producers.
This had led to some minor increases in domestic Chinese prices in early-June, however pressures have since been quelled by increased rainfall.
The disruption to some operations as a result of more extreme weather serve as an example of the fragility in flake graphite supply.
While China alone accounts for over 65% of global flake concentrate supplies, the vast majority of this production comes from only two areas – Heilongjiang and Shandong provinces.
While Heilongjiang is the number one raw material producer by volume, Shandong remains the centre of the country’s processing capacities hosting many significant producers, particularly for value-added grades such as spherical graphite for lithium-ion batteries.
Extreme weather, while uncommon in the region, was within weeks from having a major impact on the region’s processing capacity which could have caused shock waves much further downstream, with battery producers gearing up for megafactory production.
Supply chain disruption
China is the world’s leading producer of flake graphite, controlling over 60% of global concentrate supply and dominating the production of value-added grades, such as spherical graphite for lithium-ion battery anodes.
While Shandong province plays an integral role in China’s flake graphite processing capabilities, it is not unfamiliar to supply side shocks.
Only two years ago the regional government suspended mining activity in the region due to the environmental concerns.
This caused major disruption to supplies out of Shandong for over six months, and although the weak market conditions failed to expose a shortfall in material at the time, it was a signal of the government’s longer-term policy of consolidation.
Government enforced closures continue to this day in the region and as recently as this month graphite companies were found to be violating environmental regulations by disposing of tailings into nearby farmland.
This is yet to expose a shortfall in material in the market, but periods of extreme weather alongside unpredictable levels of government intervention, mean disruption in China’s flake graphite market is never far from the surface.
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