China’s Strategic Move to Tighten Graphite Exports: Implications for Global Battery Production

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In a surprising strategic move, China, the world’s foremost graphite producer, has announced its decision to enforce export permits for select graphite products. This action is aimed at safeguarding national security and marks another bold step by China to assert control over the supply of critical minerals, particularly those essential for its dominant global manufacturing sector.

China’s Pivotal Role in Graphite Production

China holds a significant position in the global graphite industry, serving as both the top producer and exporter of this vital mineral. Furthermore, it refines over 90% of the world’s graphite, a material integral to virtually all electric vehicle (EV) battery anodes. This negatively charged component is at the heart of modern battery technology, making China’s control over graphite a critical factor in the world of EVs.

An Unexpected Move with Global Ramifications

The abruptness of China’s decision has caught many by surprise. Kien Huynh, Chief Commercial Officer at Alkemy Capital Investments, described it as an “unexpected move.” This decision comes at a time when foreign governments are increasing pressure on Chinese companies over their industrial practices.

The European Union is contemplating imposing tariffs on Chinese-made EVs, citing unfair subsidies. Meanwhile, the U.S. government has recently expanded restrictions on Chinese companies’ access to semiconductors, including advanced artificial intelligence chips produced by Nvidia. In Washington, U.S. President Joe Biden discussed the importance of critical minerals with EU officials during negotiations, reflecting the global significance of this issue.

China’s Approach and Its Impact

China’s move to restrict graphite exports mirrors actions taken on August 1 for two other critical materials: gallium and germanium. These restrictions have already led to reduced exports and increased prices for these metals outside China. As a result, mining efforts outside China are gaining momentum, with a focus on bringing graphite projects to fruition and seeking alternative sources of these vital minerals.

Hugues Jacquemin, CEO of Northern Graphite (NGC.V), emphasized the message China is conveying to the West: “We are not going to help you make electric cars; you have to find your own way.” China’s commerce ministry asserts that these measures are designed to ensure the security and stability of the global supply chain, as well as safeguard national security and interests. It’s essential to note that China’s move is not specifically targeting any one country. Major buyers of graphite from China include Japan, the United States, India, and South Korea.

The Specifics of the Export Restrictions

Starting from December 1, China will require exporters to apply for permits to ship two types of graphite:

High-purity, high-hardness, and high-intensity synthetic graphite material.

Natural flake graphite and its derivative products.

The commerce ministry has identified three types of “highly sensitive” graphite items that were already under temporary controls and are now included in the new list. On the other hand, temporary controls on five less sensitive graphite items used in basic industries, such as steel, metallurgy, and chemicals, have been lifted.

Implications for the EV Industry

South Korea’s trade ministry has already expressed its intention to work closely with battery and material makers to mitigate any production disruptions in the lithium-ion battery sector. Japan, too, is taking a proactive stance, planning to engage with China to understand the operational policies of these new measures and address any violations of World Trading Organization rules.

Uncertainty Surrounding the Impact

Analysts are cautious about predicting the immediate impact of these measures on the graphite industry. Ivan Lam, a senior analyst at Counterpoint Research, noted that these controls do not amount to a complete ban and have not significantly affected any industry during previous temporary controls. Prices for natural flake graphite have experienced a decline this year, primarily due to reduced demand from the EV sector. The action may potentially boost international prices while keeping domestic prices low for Chinese battery producers.

However, it is expected that exports will surge before the December 1 enforcement date, particularly to countries with well-established battery industries like Japan, South Korea, and the United States.

China has been reducing its natural graphite mining activities in recent years to protect the environment, focusing instead on ramping up synthetic graphite production since 2021. Synthetic graphite, produced from a byproduct of the oil refining process, now accounts for 70% of China’s graphite output.

U.S. mining companies argue that China’s move underscores the need for Washington to streamline its own permit review process. Almost one-third of the graphite consumed in the United States is sourced from China, highlighting the significance of domestic mineral resource development.

Rich Nolan, head of the National Mining Association trade group, emphasized the urgency of building secure and responsible mineral supply chains in the United States, a move that is long overdue.

In conclusion, China’s strategic decision to tighten exports of graphite products has far-reaching implications for the global battery industry, especially electric vehicles. While the full impact remains uncertain, it has prompted countries and industries to reconsider their reliance on China for these critical minerals.

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