Macquarie says graphite supply needs to triple to meet demand: 3 ASX players to watch

Graphite is arguably one of the most unloved battery metals, despite making up almost half a battery’s composition. Likewise, ASX-listed graphite stocks have struggled for outperformance, especially against the household favourite, lithium. While the sector might continue to stay in limbo in the short term, Macquarie is offering some hope for long-term believers. 

“We forecast a doubling in graphite supply over the next decade, with Africa being the largest source of growth. However, given demand growth, we believe a >300% increase in production is required to balance the market,” Macquarie said in a note last Friday.

“Given the rapid rise in demand, particularly from electric vehicles, forecast, and supply constraint, we expect the market to absorb current excess supply in the next two years before rapidly moving into a deficit by CY25.”

Source: Macquarie Research

Higher prices are needed to incentivise new supply 

The graphite market has operated in a surplus in the past few years due to strong supply from China and Africa, as well as moderate growth from the industrial sector.

Industrial-related industries such as lubricants, shielding and fire retardants account for approximately 70% of global graphite demand in 2022, according to Macquarie. 

However, demand from the EV market is growing rapidly and forecast to take up more than 60% of graphite demand by the end of 2030. The rapid growth is expected to push the market into a deficit by 2025 and inspire prices to rise “over subsequent years as market deficits widen”. 

"We believe higher natural graphite pricing is required to incentivise supply beyond the current prospective projects," the analysts said.

Source: Macquarie Research, Fastmarkets

ASX-listed names to watch

Syrah Resources (ASX: SYR): “A graphite behemoth” 

Macquarie describes Syrah as the “only vertically integrated natural graphite active anode material supplier and producer outside of China at present.”

“Increasing production at Balama, closer to nameplate capacity, and commissioning and expanding Vidalia to the initial 11.25ktpa capacity are key near-term catalysts.”

Balama produced 163,000 tonnes of natural graphite in 2022 and is still ramping up to its nameplate capacity of 350,000 tpa. 

“The key differentiator for SYR is being already in production (via the globally significant Balama mine), having product qualified and with Tier-1 customers and its downstream positioning in the USA,” says Macquarie.

“We forecast significant free cash outflow over the development period of CY23-25 before SYR swings into a cash generator in CY26,” says Macquarie. 

Syrah is OUTPERFORM rated with a $2.30 target price.

Syrah Resources 12-month price chart (Source: Market Index)

Renascor Resources (ASX: RNU): “Leading the Australian graphite charge”

Renascor is a $500 million market cap developer that operates the Siviour Graphite Project in South Australia. The project boasts the world’s second largest proven graphite reserve of 51.6 million tonnes, according to Macquarie.

The company is currently working towards development prerequisites such as a Final Investment Decision, mine and downstream approvals and an optimised study to assess expanded production of Purified Spherical Graphite (PSG). 

A $70 million capital raising was held back in December 2022 to help fund and accelerate the above milestones. By the end of the December quarter, Renascor had a cash position of $137 million. 

Interestingly, Renascor has signed four non-binding purified spherical graphite (PSG) offtakes with anode manufacturers from China, Japan and Korea. These commitments represent up to 200% of its Stage 1 PSG production profile of 28,000 tonnes per annum.

“RNU’s key differentiator and advantage is being vertically integrated to battery anode material; its location in Australia and the more ESG-friendly purification in its flow sheet,” said Macquarie.

“The Siviour studies highlight robust economics, permits, FID as key near-term catalysts.”

Rensacor is OUTPERFORM rated with a $0.30 target price. 

Rensacor 12-month price chart (Source: Market Index)

Talga Group (ASX: TLG): “Anode developer leveraging EU demand”

Talga is a $550 million market cap developer, progressing its Vittangi Graphite Project and Lulea anode refinery in Sweden. The Vittangi DFS outlined a vertically integrated operation with a production profile of 19,500 tonnes per annum of anode material for 24 years. 

The Niska deposit, which forms a part of the Vittangi Project, has the potential to expand anode production by 84,700 tonnes per annum for 14-years. A late 2020 study outlined a 2025-26 timeline for Niska, but remains indicative for the time being. 

“The key differentiator for TLG is being a fully integrated mine to anode developer, with the final product (Talnode-C) being further advanced than peers who stop at battery anode material or precursor material,” said Macquarie.

Timing was flagged as a key risk for Talga, as the DFS expected all mine approvals to be secured in 2022 and first production by late 2024. Macquarie has pushed back the approval and funding timeline to the first half of 2023 and first anode production to 2025. 

Talga is OUTPERFORM rated with a $2.00 target price.

Talga 12-month price chart (Source: Market Index)