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China Oil Demand Seen Peaking In 2030
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Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com's Head of Operations
The key to the momentous global energy transition is what Goldman Sachs calls the “great battery race”, and while attention has been absorbed by lithium, one critical mineral in the battery mix is possibly the most lucrative back door entrance into this race.
The mineral is graphite, and it is the key element that forms the anode of the lithium batteries.
Without it, there will be no energy revolution and the trillion-dollar EV market might not exist.
In 2019, the global graphite market was valued at $14.9 billion. By 2027, it’s expected to be valued at nearly $22 billion. It might be worth much more than that, though.
Each EV battery contains 20-30% graphite, which means that graphite demand will soar in tandem with EV demand.
And at the same time, both China and the US are now struggling with a graphite squeeze.
While EV giants have been busy scrambling for lithium sources around the world, new concerns have arisen about a lack of graphite supply.
Some 90% of graphite anodes used in batteries come from China.
It’s yet another critical battery mineral that is becoming a national security issue for the United States, and it may be as revolutionary as plastic was in the 1950s:
With the supply squeeze on and EV demand skyrocketing as the leader in a global energy transition, we think it’s time to take a much closer look at one of the veteran processors of this mineral, Graphex Group Ltd (OTCQX: GRFXY, 6128.HK).
They’ve been around since 2008 and have developed methods for graphic processing since 2013. They’re veteran producers with major long-term contracts in China and working with some of the biggest household names.
Now, they’re looking to jump into the U.S. and European markets to help supply the growing battery manufacturing industry just beginning to be established, where new supplies of graphite are feeling the squeeze. Graphex’s President John DeMaio is making a push with the expansion of their USA-based team to focus on the North American and European expansion plans to be an integral part of the supply chain being created to support the western EV industrial complex currently being built.
Graphex believes the graphene market will see double-digit growth for the next 5 years with an estimated 29% CAGR.
While the overall car market slumped during COVID, global EV sales grew an astonishing 41% in 2020 to about 3 million electric cars, and more growth is coming, says IHS Markit, spurred in part by major policy boosts across the globe.
As of year-end 2020, China had 4.5 million EVs, and Europe 3.2 million.
“Rates of EV sales will rise sharply”, says IHS Markit, which defines the “tipping point” as 2027. That’s when they will reach manufacturing cost parity with internal combustion engine (ICE) vehicles in China. After that, it could be a snowball, with price parity hitting the EU next.
The best news: Of the 89 million vehicles IHS Markit expects to be sold in 2030, it predicts 23.5 million will be electric.
That means a soaring market for graphite. Graphite serves as the anode in lithium-ion batteries and is also used in electronics and portable tools.
The average HEV needs up to 10 kgs of graphite. The average EV requires up to 70 kgs. A Tesla Model S needs even more. Every million EVs require around 75,000 tonnes of natural graphite.
In 2019, spherical graphite demand in China alone was 200,000 tonnes. A year later, it was up to 240,000 tonnes.
In 2020, predictions were that demand for graphite would increase to 1.9 million tonnes by 2028.
In September 2021, the International Energy Agency (IEA) forecast that the electric mobility and low-carbon energy sectors would demand 25 times more graphite per year by 2040 than today.
Even in 2019, the USGS was predicting a supply squeeze.
Because the US has no graphite mines, domestic manufacturers import all raw and processed materials. In 2018, US manufacturers imported 40,000 metric tons. That number pales in comparison to the present and future needs.
Graphex (OTCQX: GRFXY, 6128.HK) estimates roughly 1,000,000 tons of demand for spherical graphite alone by 2025.
Tesla’s Nevada gigafactory alone needs an estimated 35,200 tons of spherical graphite–the specific type of graphite required for EV batteries–per year.
All this means that there could be a huge opportunity in putting more capacity online, and Graphex isn’t new to this game.
China: The Heart of the Global Opportunity
With the bulk of graphite mined in China, that means that battery manufacturers all around the world are using Chinese raw materials. And Asian battery manufacturers have an even stronger Chinese dependency: They’re not only using raw materials from China … they’re using graphite that’s also processed in China.
Graphex is already established in China. It’s said to be up there in the top five in China, and one of the top in the world.
Neither the U.S. nor Europe engages in any significant graphite processing.
Graphex is producing 10,000 metric tons of spherical graphite inside China, right next to the largest graphite mine. Those mines are owned by the Chinese government and processing that graphite comes with a long-term contract, which means price stability.
Now, Graphex says it’s getting ready to expand to 40,000 metric tons over the next three years, and it looks like the numbers are lining up nicely. Raw materials cost about $500-$800 against a sales price of approximately $2700-$2800 right now.
The company reports it has been maintaining a 27-28% gross margin.
In the production of graphite and graphite technology, Graphex has the advantage of owning a private factory located next to the world’s largest high-quality flake graphic source. It also has 23 patents on production methods, equipment design, environmental protection, and graphene applications.
As DeMaio states “As an advanced technology company providing R&D and product innovations in EV battery tech and alternative energy production, storage, and delivery, Graphex is uniquely positioned for strong growth into markets outside of Asia. Our ability to deliver superior graphite and graphene-related products and technology today – while continuously innovating and expanding our offerings in advance of the evolving needs of tomorrow – will cement Graphex Group as a foundational force in the global energy transition.”
There are some pretty steep technological barriers to entry into this potentially lucrative energy transition back door. For investors, we think that means looking at companies who have proprietary expertise in high-yield, high-volume production, like Graphex.
With a planned 4X expansion underway, and $49 million in total revenues (2020), expansion into the west and continued R&D, this may be one of the best places to start looking for opportunities along the lithium-ion supply chain.
Due in part to a massive influx of millennial money and the multi-trillion-dollar green energy boom, Tesla Inc. (NASDAQ:TSLA) has emerged as one of the fastest-growing stocks of all time.. And though it’s been caught in some controversial stances this year, like Elon Musk’s decision to buy…and then sell bitcoin, the company is still as promising as ever. And even though the market has taken a downturn in recent weeks, Tesla is still up over 20% year-to-date.
Elon Musk is truly a visionary of the times. From his electric vehicle innovations and space ambitions to his forward-thinking approach to cryptocurrencies, Elon Musk may well become the first trillionaire, and Tesla shareholders are set to ride the wave. In fact, ee released the first Tesla Roadster back in 2008, making electric vehicles cool when people were laughing at first-gen electric vehicles. Since then, Tesla’s stock has skyrocketed by over 14,000%. And it’s not just about cars, either. Musk is looking towards a much bigger picture, building the foundation for an electrified future on all fronts.
Though Musk has been an undeniable part of Tesla’s major success, he’s also led the company through a number of controversies, especially involving the SEC. Despite this, however, Tesla’s frontman keeps on pushing forward, and the company’s performance has benefited as a result.
Nio Limited (NYSE:NIO) is one of Tesla’s most exciting new competitors, especially as China looks to grow its domestic market. After a rough start after going public in 2018, it’s been on a tear, producing vehicles with record-breaking range. And it’s showing no signs of slowing.
Nio has made all the right moves over the past year to turn heads on the streets and in the marketplace... From its stunningly beautiful - and fast - EP9 supercar to its new line of family-friendly high-performance sedans, Nio is well on its way to retaking control of its local market from Elon Musk’s electric vehicle giant. And as Chinese EV sales continue to soar…Nio’s already-impressive ascension to electric superstar is only going to accelerate from here.
While Nio has taken a hit in recent weeks, along with much of the market, which has stumbled due to the Omicron variant of COVID-19, the EV producers still shows tremendous promise, and is worth keeping an eye on in the coming years.
Demand for electric vehicles has been ramping up steadily for years. But as we’re approaching the tipping point, there’s a problem that many people are still ignoring And that's where Chargepoint (NYSE:CHPT) comes in, one of the largest charging station networks in the country.
This leading EV infrastructure player went earlier this year through one of the market's hottest trends. That made them the first EV charging stock to have gone public via a reverse merger with a special purpose acquisition company, or SPAC. When it comes to the supercharged Level 2 EV charging stations, ChargePoint is the clear leader in the industry.
While Level 1 stations allow you to charge a Mercedes B Class 250e in around 20 hours...Level 2 chargers cut that down to just 3 hours to fully charge that same vehicle. That's a massive difference for people worried about having to spend nearly a day charging their vehicles before getting back on the road. And ChargePoint has a whopping 73% of the market share of networked Level 2 charging stations.
Blink (NASDAQ:BLNK) is another electric vehicle charging company. Its unique proposition is that many of the company's charging stations are found in practical locations, such as airports and hotels, making it convenient for drivers to charge up while waiting on flights or in their rooms.
A wave of new deals, including a collaboration with EnerSys and another with Envoy Technologies to deploy electric vehicles and charging stations makes it an especially interesting company. Blink has also been particularly active inking new deals, including 26 dual-port Level 2 IQ 200 EV charging stations at key Burger King locations across the Northeast; 20 Blink-owned IQ 200 electric vehicle charging services with Illinois' Blessing Health, and an exclusive seven-year agreement with Lehigh Valley Health Network for the former to own and operate charging stations across the health network's extensive portfolio of locations.
Though electric vehicles typically dominate the headlines in the alternative fuel market, automakers are also looking to hydrogen. General Motors (NYSE:GM) , for example, already has a number of electric cars, but that hasn’t stopped it from betting on hydrogen, as well. And in a surprising market; trains.
In a recent release, Wabtec announced a partnership with General Motors where GM would provide “electric batteries and hydrogen fuel systems” for Wabtec’s trains. These deliveries could begin within the next two years, and could potentially transform the entire industry. This move comes as part of GM’s wider shift towards alternative engine production, including fuel cells powered by hydrogen gas and electric vehicles.
GM is one of the most respected and recognized automakers on the planet, and now they are branching out and ditching internal combustion engines, other legacy automakers will likely follow suit. Though General Motors has been around for a long time, this is a turning point for the company. They’re making their best efforts to curb emissions, and it will likely pay off over time. Not only will it keep older shareholders happy, it could draw in new investments from more ESG-focused investors.
Turquoise Hill Resources Ltd. (TSX:TRQ) is a key player in Canada’s resource and mineral industry. It is a major producer of coal and zinc, two resources with distinctly different futures. While headlines are already touting the end of coal, zinc is a mineral that will play a key role in the future of energy for years and years to come.
In addition to its zinc operations, Turquoise Hill is also a significant producer of Uranium. Uranium is a key material in the production of nuclear energy, which many analysts are suggesting could be a major component in the global transition to cleaner energy. While the mineral has not seen significant price action in recent years, there are a number of new projects set to come online across the globe in the medium term, which could be a boon to Turquoise Hill, especially as alternative energies gain traction in the marketplace.
Teck Resources (TSX:TECK) could be one of the best-diversified miners out there, with a broad portfolio of Copper, Zinc, Energy, Gold, Silver and Molybdenum assets. It’s even involved in the oil scene! With its free cash flow and a lower volatility outlook for base metals in combination with a growing push for copper and zinc to create batteries, Teck could emerge as one of the year’s most exciting miners.
Teck has had a great year, climbing from just $18 in January, to today’s price of $26.78. In addition to its positive trajectory, the company has seen a fair amount of insider buying, which tells shareholders that the management team is serious about continuing to add shareholder value. In addition to insider buying, Teck has been added to a number of hedge fund portfolios as well, suggesting that not only do insiders believe in the company, but also the smart money that’s really driving the markets.
Celestica (TSX:CLS) is a key company in the lithium boom due to is role as one of the top manufacturers of electronics in the Americas. Celestica’s wide range of products includes but is not limited to communications solutions, enterprise and cloud services, aerospace and defense products, renewable energy and enough health technology.
Thanks to its exposure to the renewable energy market, Celestica’s future is tied hand-in-hand with the green energy boom that’s sweeping the world at the moment. It helps build smart and efficient products that integrate the latest in power generation, conversion and management technology to deliver smarter, more efficient grid and off-grid applications for the world’s leading energy equipment manufacturers and developers.
Lithium Americas Corp. (TSX:LAC) is one of North America’s most important and successful pure-play lithium companies. With two world-class lithium projects in Argentina and Nevada, Lithium Americas is well-positioned to ride the wave of growing lithium demand in the years to come. It’s already raised nearly a billion dollars in equity and debt, showing that investors have a ton of interest in the company’s ambitious plans, and it will likely continue its promising growth and expansion for years to come.
It’s not ignoring the growing demand from investors for responsible and sustainable mining, either. In fact, one of its primary goals is to create a positive impact on society and the environment through its projects. This includes cleaner mining tech, strong workplace safety practices, a range of opportunities for employees, and strong relationships with local governments to ensure that not only are its employees being taken care of, but locals as well.
Lithium Americas’ efforts have paid off in the market, as well. While many companies across multiple industries struggled last year, Lithium Americas’ stock soared. Since the beginning of the year, Lithium Americas has seen its share price climb by nearly 100%, and its showing no signs of slowing, especially as lithium demand continues to soar.
NFI Group (TSX:NFI) is another one of Canada’s most exciting companies in the electric vehicle space. It produces transit busses and motorcycles. NFI had a difficult start to the year, but it since cut its debt and begun to address its cash flow struggles in a meaningful way. Though it remains down from January highs, NFI still offers investors a promising opportunity to capitalize on the electric vehicle boom.
Recently, NFI has seen an uptick in insider stock purchases which is often a sign that the board and management strongly believe in the future of the company. In addition to its increasingly positive financial reports, it is also one of the few in the business that actually pay dividends out to its investors.
**IMPORTANT! BY READING OUR CONTENT YOU EXPLICITLY AGREE TO THE FOLLOWING. PLEASE READ CAREFULLY**
This publication contains forward-looking information which is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ from those projected in the forward-looking statements. Forward looking statements in this publication include that the global energy transition will continue as anticipated and that electric vehicles will continue to grow in market share and acceptance; that demand for electric vehicle batteries and the component materials and minerals used to produce electric vehicle batteries will continue to grow significantly; that the market for graphite and related products will continue to expand and achieve double digit growth in the next five years with an anticipated 29% compound annual growth rate; that there will be shortages in China, U.S. and globally of the graphite necessary to produce electric vehicle batteries; that Graphex Group Limited (the “Company”) can leverage its existing operations and reputation in China to capture market share of global graphite demand; that the Company can expand its business operations to the U.S. and European markets and gain significant market share for the supply of graphite for electric vehicle batteries; that the Company can leverage its proximity to graphite mines to expand its operations and capture market share for global graphite demand; that the Company can achieve its business plans and objectives as anticipated. These forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Risks that could change or prevent these statements from coming to fruition include that the global energy transition may not continue as anticipated and that other types of alternative energy vehicles may be developed and gain market share over current types of electric vehicles; that demand for electric vehicle batteries as currently produced and the component materials and minerals used to currently produce electric vehicle batteries may be less than expected for various reasons including the development of alternative materials and technologies; that the market for graphite and related products may not expand and achieve growth as anticipated; that for various reasons, including production of graphite or alternative technologies by other competitors of the Company, there may not be shortages of or increases in demand for graphite in China, U.S. and/or globally as expected or at all; that the Company may be unable to leverage its existing operations and reputation in China to capture substantial market share of global graphite demand; that the Company may be unsuccessful in the expansion of its business operations to the U.S. and European markets and fail to gain significant market share for the supply of graphite for electric vehicle batteries in China and/or globally; that the Company may be unable to leverage its proximity to graphite mines to expand its operations and capture market share for domestic and global graphite demand; that the business of the Company may be unsuccessful for various reasons. The forward-looking information contained herein is given as of the date hereof and we assume no responsibility to update or revise such information to reflect new events or circumstances, except as required by law.
This communication is for entertainment purposes only. Never invest purely based on our communication. We have not been compensated by Graphex but may in the future be compensated to conduct investor awareness advertising and marketing for OTCQX: GRFXY. The information in our communications and on our website has not been independently verified and is not guaranteed to be correct. Price targets that we have listed in this article are our opinions based on limited analysis, but we are not professional financial analysts so price targets are not to be relied on.
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Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com's Head of Operations
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