Industrial China in 2013 and graphites role China Graphite Field - PowerPoint PPT Presentation

indmin.com/ Data Industrial China in 2013 and graphite’s role China Graphite Field Trip & Briefing 2013 Simon Moores, Manager, Industrial Minerals Data – smoores@indmin.com

1. China’s main drivers 2. Macro changes to mining in China 3. Flake ‐ graphite changes in China 4. The future

Shanghai 1990s

Shanghai 2010s

1. China’s main drivers | Economy and mineral demand Growth <8% = norm • GDP growth of major economies 2012 ‐ 2017 China still a huge country in the midst of • industrialisation Net mineral consumer through major • industry: Steel • Metals production (aluminium, copper, lead, • zinc) Fertilizer • Drivers • Infrastructure (Real estate, rail, roads, • airports) Cars • Crop production • All underpinned by population growth and • urbanisation (rise of the middle class)

1. China’s main drivers China’s minerals demand forecast ( indexed to 2012 ) Graphite Graphite

1. China’s main drivers China is now an importer of raw materials 2000 average import dependency: 15% • 2011 average important dependency: 40% • China’s dependency on imported raw materials 80% 70% 60% 50% 40% 2000 30% 2011 20% 10% 0% Bauxite Copper Iron ore Coking Average coal Note: China is a net exporter of natural graphite

2. Macro changes to mining in China Resource management Environmental reasons commonly given • But…China no longer wants to be the bread basket for the rest of the world • Exports of raw materials at the expense of resources/environment no longer a • viable long term business The rare earths excuse •

2. Macro changes to mining in China Pollution controls 2007 – Refractory ‐ grade bauxite Blanket ban on all round/downdraft kilns, Shanxi • Heavily polluting, inefficient • Had to covert rotary kilns or go bust • 75% of producers wiped out overnight • Prices up 70% • 2009 – Flake Graphite, Inner Mongolia Mine closures of older operations • Pollution and demand grounds • 2011 – Amorphous Graphite, Hunan Government ‐ forced consolidation in • Lutang Coal and amorphous graphite industries • 220 mines to 30 on pollution and • resource protection grounds 2012 – Flake Graphite, Jixi, Heilongjiang

2. Macro changes to mining in China Developing a value ‐ added economy Exports of raw materials at the expense of resources/environment no longer • viable Development of the production value ‐ chain is critical • The 7 key industries China wants to develop 1. New energy 2. New energy automotive 3. New materials 4. Energy saving and environmental protection 5. Biological science 6. New information industry 7. High ‐ end equipment manufacturing

2. Macro changes to mining in China High quality, lower cost manufacturing Consolidation – majority of production by the fewest companies China wants to compete on quality and quantity Output of top ten steel producers ‐ % of total capacity

2. Macro changes to mining in China Cost of mining in China is rising In the last 10 years: Total costs up 800% for fluorspar • Average wages up 250% • Industrial machinery sales up 300% between 2006 and 2011 • Government crackdown on inefficient mining and processing practices • Forced replacement of low cost labour • Rising costs in China (% indexed to 2004) 240 220 200 Wages 180 Land Coal, Oil, Electricity 160 Yuan 140 120 Source: China Economic Information Network, Bloomberg, 100 The People’s Bank of China, China Economic 2004 2005 2006 2007 2008 2009 2010 2011 Information

3. Flake graphite changes in China Graphite now on the national radar • Amorphous graphite consolidation in Hunan 2010 ‐ 2011 • Capped capacity at 510,000 tpa • Real output in 2012: 250,000 tpa • 220 mines down to 20 ‐ 30 • In essence it was a coal consolidation • Graphite listed as a strategic mineral in China • Questions over how serious the government is at reform = larger mineral • industries than graphite

3. Flake graphite changes in China Policy changes in Shandong

3. Flake graphite changes in China Policy changes in Shandong Formal notice service to Pingdu & Laixi on 30 October 2012 • Ban on any new graphite processing plants • Environmental reasons = polluting of Pingtang River • Environmental approval for every plant must be saught, those that fall foul will • have to cease operation Nanshu Graphite plant, Shandong Real regulation or rhetoric? Relocation of plants to Heilongjiang?

3. Flake graphite changes in China Reserve challenges – Heilongjiang vs Shandong Shandong Capacity: 160,000 tpa • Operating rate: 43% • Oldest flake graphite mines in China • Extraction is deeper and becoming • more expensive Processing plants importing • more raw material from Heilongjiang

3. Flake graphite changes in China Reserve challenges – Heilongjiang vs Shandong Heilongjiang Capacity: 280,000 tpa • Operating rate: 60% • China’s largest flake graphite producing province • Largest resources in Asia – Luobei and Jixi • Produces spherical • graphite Establishing graphite • industrial zones

3. Flake graphite changes in China Reserve challenges – Luobei and Jixi Luobei North ‐ east, on border with Russia • 636m. tonnes resources in 9km2 area • 1/3 rd of China’s graphite resources • Jixi 800m. Tonnes resources • Mines in Jixi suspended by government in • mid ‐ 2012 Rich resources of both Luobei and Jixi very attractive to large Chinese corporations

3. Flake graphite changes in China The need for structural change Graphite is an old mining industry in China (“Black gold”) • Structured in the 1980s • Little widespread change in mining and processing has taken place since • Phosphate – case study 10m. tonnes over-capacity (total: 23m. tpa) • Many smaller miners, very few major players = graphite • In 2012, the government started a consolidation program by nominating preferred producers • Free loans to buy out • smaller competitors Revoking of mining licences • of troublesome smaller players

3. Flake graphite changes in China Establishing centres of hi ‐ tech development Inner Mongolia Consolidation program started in 2010 • Rising New Energy the preferred producer (owns all mining licences) • Centralised graphite processing hubs • Advanced, value ‐ added materials • High purity, spherical, expandable, foil • 18 February 2013, indmin.com Rising New Energy’s 1902 acre graphite industrial park

4. The medium term future for China In need of modernisation • Increased focus on more efficient graphite mining • Consolidation will happen • High potential for export supply restrictions in favour of • value ‐ added products Net exporter of graphite for foreseeable future • Steady, cheap supply of graphite concentrate from China is over • China is industry leading with commercial spherical graphite • China will compete in other advanced battery materials •

15 March 2013, Indonesia 3 rd fastest growing economy in Asia • Ban includes: bauxite, limestone, quartz, zeolite, feldspar, iron ore • “Ban will be strict with no exceptions” Thamrin Latuconsina , Director of Export of Industrial and Mining Products from the Ministry of Trade, Indonesia

January 2013, Shenzen BYD delivers first batch of fully electric police cars to Shenzen Police Dept.