Graphite restrictions impacting markets

October, 2023

What happened:

According to news sources China will require export permits on some graphite products from December 1st. Both synthetic graphite (SG) and natural graphite (NG) products must go through export licensing procedures. The move comes after the U.S. stepped up semi-conductor restrictions and the EU considers a Chinese EV subsidy investigation.

As we know:

China dominates graphite mining, processing and anode production and is set to produce 67% of global natural graphite this year according to Benchmark Mineral Intelligence.

China also refines more than 90% of global battery anode material that is used in virtually all Electric Vehicle battery anodes

The policy has the potential to significantly impact ex-China LiB production.

Some details:

When we talk about natural graphite (NG), we're referring to materials like flake graphite and other similar products. Some Korean companies, like POSCO Future M, currently depend on China for a specific type of natural graphite called spherical coated NG. There's a bit of confusion about whether the regulations for synthetic graphite (SG) cover the finished SG anode products or just the earlier stages of production that aren't as valuable.

In the worst-case scenario, if there are restrictions on SG anodes, it could potentially disrupt the production of batteries in the EU, the US, and Korea. This could mean a temporary pause in making batteries in these regions. On the flip side, it might make Chinese battery exports more competitive and help reduce excess production in those countries.

Long-term implications:

Graphite is considered a vital mineral in both the European Union (EU) and the United States (US). Recent policies, such as the Inflation Reduction Act and the EU Green Deal, highlight the increasing worry about depending on other countries, especially China, for critical minerals. These policies specifically aim to reduce reliance on third-party countries.

The US Department of Treasury plans to provide a definition of what they consider foreign entities of concern by the end of 2023. China's recent actions might lead to a stricter interpretation of this definition, potentially impacting how the US deals with foreign entities in the future.

Onshoring graphite an outcome:

SG isn't tied to a specific location; countries with substantial oil refining facilities have the raw materials needed for SG production. The United States, the European Union, and India are already producing SG electrodes for the steel industry.

We expect that the capacity for SG electrodes will shift towards producing anode powder. We've already witnessed a similar transition in China between 2020 and 2022. Furthermore, we're likely to see an increase in NG mining and processing capabilities outside of China. This reflects the broader trend of countries expanding their NG production.


Hitting the news:

On the 25th of October, the Bloomberg news team spoke to Matthew about the impact of the permits.

“We see the halting of ex-China battery production as improbable, but assuming the status quo remains, natural graphite products will see increased administrative barriers,” said Matthew Langsford, a portfolio manager at Terra Capital, which holds stocks of graphite producers. 

You can read the full article with Bloomberg here.