In an unexpected move that has sent shockwaves through international markets, China announced on Friday its decision to mandate export permits for certain graphite products in an effort to safeguard its national security interests. This strategic maneuver underscores China’s determination to control the supply of critical minerals, especially as it faces mounting challenges to its global manufacturing dominance.
China is the world’s leading producer and exporter of graphite, and it plays a pivotal role in refining over 90% of the world’s graphite into the material used in virtually all electric vehicle (EV) battery anodes, a crucial component of modern batteries.
Kien Huynh, Chief Commercial Officer at Alkemy Capital Investments, a company focused on developing projects in the energy transition metals sector, commented, “This bold and unexpected move by China in graphite has taken us by surprise, arriving far sooner than anyone could have predicted.”
This move comes as foreign governments increase pressure on Chinese companies due to concerns about their industrial practices. The European Union is considering imposing tariffs on Chinese-made EVs, alleging that they unfairly benefit from subsidies. Additionally, the United States government recently expanded restrictions on Chinese companies’ access to semiconductors, including advanced artificial intelligence chips produced by Nvidia. To address these issues, U.S. President Joe Biden held discussions on critical minerals with EU officials in Washington.
China’s recent restrictions on graphite are reminiscent of measures imposed since August 1 for two chip-making metals, gallium and germanium. These restrictions have led to reduced exports and increased prices for these metals outside China. This situation has prompted miners from outside China to accelerate their graphite projects and explore alternative sources.
Hugues Jacquemin, CEO of Northern Graphite (NGC.V), stated, “What China is saying to the West with this decision is that we are not going to help you make electric cars; you have to find your own way to do that.”
China’s Commerce Ministry emphasized that these actions are aimed at “ensuring the security and stability of the global supply chain and industrial chain, and conducive to better safeguarding national security and interests.” The ministry clarified that these restrictions are not targeted at any specific country. Major buyers of graphite from China include Japan, the United States, India, and South Korea.
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, as well as natural flake graphite and its products. Three “highly sensitive” graphite items were already under temporary controls, and they will now be included in the new list. Meanwhile, temporary controls on five less sensitive graphite items used in basic industries such as steel, metallurgy, and chemicals have been removed.
With the increasing sales of electric vehicles, automakers are striving to secure supplies from sources outside China, as potential shortages loom.
Kang Dong-jin, an analyst at Hyundai Motor Securities, explained, “With this new graphite export curb, South Korean firms that heavily rely on China for graphite imports would need to seek alternatives, such as mines from the United States or Australia, but it would likely increase the cost burden for many.”
South Korea’s trade ministry held a meeting with battery and material manufacturers to address the export curbs, with Industry Minister Ahn Duk-geun emphasizing the importance of avoiding production disruptions in the lithium-ion battery sector.
Japan’s top government spokesperson Hirokazu Matsuno announced plans to inquire about China’s “operational policies” regarding the new measures and take appropriate steps if they violate World Trade Organization rules.
After the announcement, shares in China’s new energy vehicle and battery manufacturers experienced an uptick.
Despite the uncertainty surrounding the impact of these measures on graphite, Ivan Lam, a senior analyst at Counterpoint Research, noted, “This control is not a complete ban, and there has been no significant impact on any industry during the previous temporary control.”
Prices for natural flake graphite have seen a 25.5% decrease this year due to declining demand from the EV sector, according to consultancy Mysteel. Tom Kavanagh, Head of Battery Metals at Argus, remarked, “This action could set them on an upward trajectory internationally, while keeping domestic prices low for Chinese battery producers.”
Export volumes are expected to rise before December 1, particularly to countries with established battery industries like Japan, South Korea, and the United States.
In recent years, China has reduced natural graphite mining to protect the environment and has increased synthetic graphite production since 2021. The synthetic form, produced using a byproduct of the oil refining process, now accounts for 70% of China’s output, according to Mysteel.
U.S. miners have emphasized that China’s actions underscore the need for the United States to streamline its permit review process, as nearly one-third of the graphite consumed in the United States originates from China, according to the Alliance for Automotive Innovation, which represents auto supply chain companies.
Rich Nolan, Head of the National Mining Association trade group, stressed, “It’s well past time for the U.S. to lean into our vast mineral resources and build the secure, responsible mineral supply chains we so urgently need.
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