Can lithium-ion anode demand for needle coke reduce availability for electrode players?

  • What is needle coke?
  • Uses of needle coke
  • Lithium-ion battery manufacturers demand needle coke


Needle coke?

Needle coke is a specialised form of petroleum coke that is derived during coke production from coal tar or as a by-product of the oil refining process. Needle coke is a high technology intensive product and is manufactured commercially on a large scale by only 4 companies globally, which are Phillips 66, C-Chem Co. Ltd., Mitsubishi Chemical Corporation and JXTG Nippon Oil & Energy (the 5th player Seadrift Coke LP is a subsidiary of GrafTech International and does not engage in commercial sales of its needle coke output). Chinese producers engage in low quality of coke production which is not utilised internationally.

Further, needle coke is used for the production of synthetic graphite and it is the only suitable material for manufacturing of the highest quality, 99% plus pure graphite through graphitisation process. Synthetic graphite primarily finds application in UHP grade graphite electrode manufacturing, which, in turn, is consumed for steel manufacturing through electric arc furnace (EAF) route. Globally, excluding China, the high-grade needle coke capacity is ~750 thousand tonnes and the capacity additions were limited over the years due to a subdued demand from the EAF steel industry. Furthermore, an incremental capacity addition (barring debottlenecking initiatives at existing plants) have a long gestation period of more than 2 years, which limits the potential of incremental supplies in the market in a short span of time.

In the past, almost all of the needle coke demand emanated from graphite electrode industry. However, owing to the cyclical nature of the industry and a low demand situation, the leading needle coke manufacturers started working with other industries to explore alternative applications for needle coke. Presently, ~75-80% of all needle coke supplies are absorbed by the graphite electrode industry, while the remaining is being consumed by the lithium-ion battery manufacturers and speciality carbon industry. Although, these industries generally keep swapping among natural and synthetic graphite, which depends on the availability, relative price, grade consistency and purity requirement. Whereas, graphite electrode manufacturers are solely dependent on the needle coke to manufacture UHP grade electrodes.

Demand from lithium-ion battery manufacturers

Graphite is the most suitable material used for making of lithium-ion battery anodes. However, other metal substitutes for anodes create severe problems such as expansion, restricted life, high-cost and safety concerns. Moreover, either natural or synthetic graphite powder can be used for manufacturing of anodes, which forms fine compatibility with the lithium-based cathodes. There are differences in the characteristics of the battery formed with any of the material, but these are largely negligible. Natural graphite anodes have higher initial use efficiency, while synthetic graphite anodes have a better cycle and safety performance.

In a lithium-ion battery, the cathode and electrolyte costs form roughly 50 and 25 percent of the total cost of production, while the graphite anode costs around 10 percent of the total cost of production. A small subset of battery manufacturer produces battery anodes employing synthetic graphite whenever a specific battery design need arises. Traditionally, a higher cost of synthetic graphite as compared to natural graphite has set the trend for large battery manufacturers to prefer natural graphite, thereby, maintaining a low percentage cost of anodes in the total battery production cost. 

Additionally, the end choice for graphite source to produce anode mainly depends on the relative price of natural and synthetic graphite in the market. Further, given the abundant availability of natural graphite in the global market with estimated international reserves exceeding 800 million tonnes of recoverable graphite, natural graphite is a very lucrative replacement and hence, is a primary choice for most of the graphite consuming industries. The lithium-ion battery industry is targeting for a widespread acceptance of its batteries world over and thus, it is aiming to make battery prices more competitive. This has fixed their preference on the natural graphite as a favoured source of raw material for the anode.

In addition, during 2012-17, needle coke prices collapsed due to a weak demand from the graphite electrode industry and a fall in the crude prices. The prices declined to below $1,000 per ton making needle coke more competitive for use in synthetic graphite anodes for batteries as an alternative to the preferred natural graphite. This created a reliable incremental demand for needle coke from a large and expanding lithium-ion battery industry.

Although the global graphite electrode manufacturing industry was unaffected with the diversion of its key raw material (needle coke) to other industries as the graphite electrode industry itself was reeling under demand slowdown from EAF steel industry. However, the graphite electrode industry witnessed a sudden surge in demand in the second half of 2017, which is anticipated to continue in few upcoming years. The sudden rise in demand from graphite electrode resulted in a high requirement of needle coke, the supply of which is limited and other industries were also vying for a share in the pie. The scenario has completely reversed in the course of few months, graphite electrode manufacturers (traditional consumers of needle coke) are competing with lithium-ion battery manufacturers for needle coke and hence, are holding back capacity expansion plans in the wake of uncertainty over needle coke supply to the graphite electrode industry.

Televisory believe that the diversion of needle coke to lithium-ion battery manufacturing industry will be curtailed in 2018 and also in the near-term as sharp spikes in needle coke prices have made it less lucrative in relation to the natural graphite. Needle coke prices exceeded $3,000 and made it more expensive for use as compared to the natural graphite, which is currently priced at $1,850 (for a high purity XL natural graphite). A continuous use of synthetic graphite under the current prices will result in an erosion of margins for battery manufacturers or this will lead to a jump in the prices of lithium-ion batteries prices.

Another key factor which Televisory trust will restrict the diversion of needle coke to the lithium-ion battery industry is the ongoing R&D attempts to utilise graphene (a derivative of graphite) for batteries, which is projected to improve its capacity and output exponentially. Graphene’s use in lithium-ion batteries will boost the present storage potential as the performance will improve significantly. Natural graphite is the main source which is feasible for graphene production and synthetic graphite is not a suitable base. This builds a strong belief that natural graphite’s use in the battery industry would outpace needle coke-based synthetic graphite use in the future. This, in turn, will shift the demand from battery manufacturers to more economical natural graphite anodes as they attempt to improve the pricing dynamics of lithium-ion batteries to inculcate a wider acceptance in the world economy. Thus, Televisory expect a decrease in the demand for needle coke from the lithium-ion battery industry going forward. This is likely to free up needle coke supplies, which are extremely tight at the moment for the graphite electrode industry, which is witnessing a strong rebound in the demand for electrodes from EAF steel manufacturers.

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