Seeking to hold its control over markets for materials related to electric vehicles (EVs), China will now require export permits for some forms of graphite.
High-hardness graphite is an essential ingredient in lithium batteries’ negative terminals.
China produces 64 percent of the world’s natural graphite and more than half of the synthetic equivalent. It also refines more than 90 percent of the world’s supply.
China’s main customers for EV-grade graphite are India, Japan, South Korea, and the U.S., which also are the world’s main EV producers outside of China.
The export controls will be wielded strategically, analysts said. Chinese companies building EV and battery plants outside of the country will likely be excluded, while competing nations will be subject to restrictions.
The controls are “conducive to ensuring the security and stability of the global supply chain and industrial chain, and conducive to better safeguarding national security and interests,” China’s commerce ministry said.
“This bold and unexpected move by China has taken us by surprise, arriving far sooner than anyone could have predicted,” Kien Huynh, chief commercial officer at Alkemy Capital Investments, told Reuters.
The move is seen as coming, in part, as a response to the European Union’s proposed tariffs on Chinese-made EVs. China subsidizes the exported vehicles unfairly, the EU has charged.
Also, last week the U.S. government tightened exports of advanced computer chips to China, especially those needed for advanced artificial intelligence systems.
China’s new rules require exporters to apply for permits to ship two types of specialized graphite in addition to three kinds already restricted. However, the ministry dropped controls over five lower-grade forms of graphite used to make chemicals and metals such as steel.
“With this new graphite export curb, South Korean firms which heavily rely on China for graphite imports would need to seek alternatives, such as mines from the United States or Australia [and] would likely increase the cost burden for many,” analyst Kang Dong-jin at Hyundai Motor Securities said to the Financial Times.
Japan will “take appropriate steps” if China’s new policy violates World Trading Organization rules, the government announced.
The price of flake graphite was $539.62 a metric ton last week, 25.5 percent lower since the year began as China’s EV demand puckered, according to Mysteel, a firm that analyzes China’s metals markets.
Exports are likely to surge prior to the 1 December inauguration of export controls, the FT said.
World demand for graphite will reach 770,000 metric tons this year and will triple by 2033, according to analysis firm Fastmarkets.
TRENDPOST: Together, China, Russia, and Ukraine mine the majority of the world’s graphite.
For geopolitical reasons, those sources are increasingly unavailable. Africa, Canada, and Scandinavia have small amounts that can be tapped.
Graphite also can be synthesized from hydrocarbons such as natural gas through complex, energy-intensive industrial processes.
As with lithium, the world has come to rely on China to process mined graphite into usable forms. Recreating that infrastructure in other parts of the world will take years.
China is losing export revenue as the price of EV-related metals has crashed, as we report in “Prices For EV Metals Crash” in this issue. Restricting graphite exports will boost the material’s price, helping to offset a portion of China’s lost receipts.
TREND FORECAST: As part of the effort to reshore or “friendshore” supply chains, more countries will begin the process of tapping or manufacturing their own graphite reserves. Any mining venture requires lengthy environmental reviews in most Western countries, as well as time lost as environmental groups protest and litigate proposed mining ventures.
As a result, new graphite mines in the West will not be delivering ore for at least five years. Shortages will spike prices, another factor that will keep EVs’ sticker prices high, at least in the short to medium term.
China’s restriction also will add an additional spur to the development of alternative battery chemistries, already the hotbed of EV-related research.