The Ukraine conflict has exacerbated the global shipping crisis, limiting the existing and near-term supply of graphite just as demand for the "overlooked" critical mineral is heating up.

Analysts expect graphite supply to tighten in coming years as demand for electric vehicle batteries ramps up. With Russia's February 24 invasion also knocking out production from both Russia and Ukraine, the latter of which is believed to hold much of Europe's graphite potential, the shipping delays affecting existing and new projects globally are aggravating the supply challenge.

Shipping trouble already kept Mozambique producer Syrah Resources Ltd. from fully capitalizing on China's record production of active anode material in the first quarter.

"The COVID-19 and conflict-related disruptions have seen enormous disruption to container and bulk shipping, with many vessels delayed and waiting off ports that are not operating at full efficiency," Syrah CEO Shaun Verner told S&P Global Commodity Insights. "This effectively reduces the pool of vessel availability and significantly extends transit times, meaning less available capacity and long delivery times for a fairly stable cargo base. As a result, shipowners and container companies have also increased freight rates."

"Global supply chain disruptions from China's [COVID-19] lockdowns and the Ukraine crisis are a double-edged sword for Syrah — tightening the market for their product but risk hindering the logistics to ship their own product out as well," Saul Kavonic, head of Credit Suisse's Australia integrated energy and resources securities research, said in an email interview.

Transporting graphite material from China into Europe, where demand is rapidly growing, has become "prohibitive" due to the shipping woes, according to Trevor Matthews, managing director of Volt Resources Ltd., which suspended its Zavalievsky operation in Ukraine when Russia invaded.

"With the cost of containers and port charges, transport alone can cost between $400/t and $500/t," Matthews told Commodity Insights. "In Europe, some pricing for the lower-cost fine material has crept over €850/t."

Steady demand

The volumes and value per tonne of graphite imports to the U.S. — both in total and from China, which dominates global graphite supply — have trended upward since June 2021, with a huge spike in February, according to the most recent available data from Panjiva.

The heightened value of those imports reflects the "inherent value of graphite going up and freight costs have gone up, along with the FOB price in China — the cost before freight," Mark Fichera, executive director and head of research at Foster Stockbroking, told Commodity Insights.

A compound annual growth rate of between 14% and 16% is forecast for flake graphite demand this decade, Phil Carter, senior analyst with investment bank PAC Partners, said in an April 20 note. Batteries will be the largest market for graphite by 2035, with battery applications accounting for 55% of all graphite demand.

By weight, graphite is the largest component in lithium-ion batteries, which contain 10 to 15 times more graphite than lithium, according to Northern Graphite Corp., whose Lac des Iles project in Quebec is North America's only significant graphite producer.

With electric vehicle sales expected to reach up to 11 million units in 2022, Benchmark Mineral Intelligence forecast a 40,000-tonne graphite deficit this year, analyst George Miller told the South China Morning Post in April.

New projects also hampered

New graphite projects underway to help meet that strong demand are also taking a hit from shipping problems.

Walkabout Resources Ltd., for instance, is struggling to develop a new project in Tanzania. Container ships from Walkabout's construction partner, YanTai JinPeng Mining Machinery Co. Ltd., are typically delayed outside of Tanzania's Dar es Salaam port for three weeks before berth space is allocated, Walkabout CEO Andrew Cunningham told Commodity Insights in an email interview.

Those containers carry mobile equipment for plant construction and ongoing maintenance and operations for Walkabout's Lindi Jumbo graphite project in Tanzania, due to start production in the second half.

PAC Partners' Carter hopes that the conflict in Ukraine will be resolved by 2024, when graphite from other developers such as Tanzania-focused Black Rock Mining Ltd. is expected to start feeding the global market, which the analyst said is reaching a tipping point.

"We believe graphite has been overlooked in the race to secure critical raw materials for battery manufacturing," Carter said.

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Panjiva is the supply chain research unit of S&P Global Market Intelligence, a division of S&P Global Inc.