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China's graphite market is not far from the downturn
**Abstract**
As a critical strategic resource, graphite has attracted increasing attention in recent years. From the active advocacy of industry associations to the recent release of the "Graphite Industry Access Conditions" at the national level, the graphite sector is entering a new phase of regulated and sustainable development. This opportunity is truly like a timely rain for the graphite market and the entire industry, which is currently facing a downturn.
**The problem has been around for a long time**
At present, the graphite market is in a slump, with over 90% of companies halting production. Both production levels and prices have dropped significantly, and exports have also declined, according to Liu Ronghua, a researcher in the graphite industry and investment. He attended the first "China Graphite Industry Development Seminar and the 2012 Graphite Special Committee Annual Meeting" in Beijing in early December.
According to data from the Graphite Special Committee of the China Non-Metallic Mining Industry Association, as of the end of October 2012, natural flake graphite production reached over 400,000 tons, down more than 50% compared to the same period last year, and over 60% year-on-year. Natural flake graphite exports were 88,000 tons, down 30% year-on-year.
Previously, some graphite producers reported that their operations were difficult, with falling prices and reduced customer demand. Companies could only produce based on customer orders. Han Yufeng, president of the Heilongjiang Graphite Industry Association, noted that the current market is declining, with rising inventory, lower efficiency, and a chaotic environment.
Some media attributed the price drop to the global and domestic economic situation. On one hand, new graphite enterprises in other countries have increased output and exports, competing with Chinese graphite. On the other hand, the slowdown in the domestic economy has affected industries like steel and automobiles, reducing graphite demand.
Although the market downturn is linked to broader economic conditions, many in the industry are focusing on internal issues. Liu Ronghua pointed out that oversupply under overcapacity is the main issue, especially when demand is weak.
Industry reports also highlighted concerns about excessive output and unbalanced production and sales. The graphite industry has long suffered from overcapacity, with rapid growth leading to problems like disorderly mining, cutthroat competition, waste, and environmental damage.
In recent years, many companies rushed into graphite mining, leading to indiscriminate extraction and low-price selling, disrupting market order and triggering price wars. A senior executive from a large graphite company said that operational challenges include difficulties in deep processing projects and unstable profits. They believe industry standards would help allocate resources better and support long-term development.
In November, the Ministry of Industry and Information Technology released the long-awaited "Graphite Industry Access Conditions," setting requirements on scale, layout, energy use, water consumption, product quality, and environmental protection. These regulations aim to control new capacity, optimize existing stock, and promote industrial consolidation.
China is a major player in graphite, with the world’s largest reserves and production. According to the USGS, China holds 74% of global proven reserves. In 2010, it accounted for 64.9% of global production.
With the rise of new energy and materials industries, graphite—especially its processed forms—has become vital in defense, aerospace, and advanced materials. Countries like the U.S. and EU have classified graphite as a strategic resource.
The new access conditions will help eliminate outdated production, improve environmental standards, and stabilize the market. Liu Ronghua believes this will lead to more orderly competition and sustainable development.
**The outlook is still broad**
Zhi Zhixiang, former Secretary General of the China Graphite Industry Association, noted that while the industry is in an off-season, production is expected to resume in January. If the economy improves, prices may recover. However, if backlogs remain, the market could continue to decline.
With the implementation of the access conditions, the current issues of high inventory and chaos will gradually improve. The industry remains optimistic about the future, despite the current challenges.
Liu Ronghua emphasized that the future of graphite is promising. Traditional uses, such as in refractory materials, still account for 45% of demand. Meanwhile, new applications like spherical graphite, flexible graphite, and nuclear graphite are emerging as key growth areas.
Graphite is increasingly valued for its role in green energy and technology. It has vast potential in wind power, automotive, consumer goods, and defense sectors. High-quality special graphite is seen as a key material for future technologies.
With the goal of having 10% of vehicles be electric by 2020, the lithium battery market in China is expected to reach 200 billion yuan, offering significant opportunities for the graphite industry.
Despite the current challenges, the potential of the graphite industry remains largely untapped. Many companies are planning deep processing projects, but few have made substantial investments. Liu Ronghua stressed the need for greater focus on value-added products.
For graphite enterprises, this is a time to strengthen internal capabilities: optimizing product structures, extending the industrial chain, and enhancing innovation and technological transformation.
With industry access measures and better regulation, the market will become more competitive and stable, supporting healthy and sustainable development.
Industry insiders believe the graphite market is poised to recover soon, driven by policy support, improved standards, and growing demand.