Graphite producers such as Syrah Resources, which operates the Balama graphite mine in Mozambique, pictured above, will be key to providing supply to battery-cell makers outside of China. |
Graphite producers outside of China have been having an easier time raising money after China announced controls on the critical battery material that will come into effect Dec. 1, industry participants told S&P Global Commodity Insights.
The Chinese Ministry of Commerce said Oct. 20 that it would require export permits starting Dec. 1 for forms of natural and synthetic graphite, which is used in the electric vehicle sector and in military applications, among others.
The measures sent shockwaves through the battery industry as China's dominance over the supply chain of graphite, the largest component of a lithium-ion battery by weight, means battery-cell producers will be dependent on approval from the Chinese government to secure anode materials.
China supplied about 70% of the world's natural graphite in 2022 and almost exclusively holds the capacity to process the mineral into battery-grade material, along with most of the world's capacity to manufacture battery anodes, according to the International Energy Agency.
The measures will help China ensure its own EV industry is well supplied, and it may be a boon to producers outside the country, analysts and industry participants told Commodity Insights.
"It put a spotlight on our industry," said Hugues Jacquemin, CEO of Northern Graphite Corp. "It's enabling me to raise more money because people now see more value in my graphite business."
From scarcity to investment
Industry participants said they are hopeful for additional investment interest and support from shareholders, value chain participants and governments following the new restrictions, also flagging that a graphite industry outside of China will not be able to get off the ground until the medium term.
"You cannot just invest in making cathode material, you also need to invest on the anode side," said Eric Desaulniers, president and CEO of Nouveau Monde Graphite Inc. "You need both sides of the battery."
Graphite makes up
Graphite producers are already receiving additional attention after China announced its new restrictions. However, some producers worry that the investment community has a short attention span.
"Now the investment community and the media is starting to focus more and more on graphite and that will drive investment interest," said John DeMaio, CEO of midstream graphite processor Graphex Technologies LLC.
"It's affecting our share price in a good way," Northern Graphite's Jacquemin said. "But it has a short life [span] because a month from now, or two months from now, it will become business as usual. And people will have forgotten that China went from no control to control."
Desaulniers said that communicating graphite's cost and value to the financial market is "as much work as building the plant."
Layers of control
China holds the largest battery-making capacity in the world and the country is expected to represent more than half of the 6.5 TWh in global manufacturing capacity estimated for 2030, according to a Commodity Insights research report released in July.
Chinese consumers also have the largest appetite for EVs, purchasing 5.7 million units in 2022, more than double the second-largest market, the EU, Market Intelligence data shows.
"They want to be in control of this essential material to give an edge to local cell-makers rather than cell-makers outside China," Desaulniers said.
Keeping supplies inside the country will also allow China to build out its graphite-coating capacity, which is largely controlled by Japan and South Korea, "for a more complete supply chain," James Willoughby, senior research analyst at Wood Mackenzie, told Commodity Insights.
Jacquemin said the measure allows the government to pick and choose which consumers outside of China get their critical minerals.
"That graphite is going to go to batteries that power Chinese vehicles that will be sold in Europe and North America. They are not going to help their competitors penetrate the battery industry," Jacquemin said.
China-based battery-makers including Contemporary Amperex Technology Co. Ltd. and China Aviation Lithium Battery Co. Ltd. are increasingly investing in offshore battery facilities in Europe amid domestic oversupply and global pressures for localization, according to an Oct. 4 report by S&P Global Ratings.
Competition heats up
The new restrictions come in the wake of a series of protectionist policies on advanced technology put forth by both China and the US.
In August, China set similar export requirements on gallium and germanium, which are used in computer chips and EVs. The requirements followed
In the burgeoning EV sector, the US enacted the Inflation Reduction Act to incentivize a local battery supply chain and EV industry, while the EU has started an antidumping investigating on EVs from China.
"They're [all] protecting," said Jacquemin. "That's why the European Commission is starting an antidumping investigation and that's why the US has put together the [Inflation Reduction Act]. It's to try to protect their industries. And what you see from China is just their way of dealing with this issue."
The graphite measures create "uncertainty in business planning" just as the gallium and germanium restrictions did, Graphex Technologies' DeMaio said. China produced 98% of the world's primary gallium in 2022 and was a leading producer and exporter of germanium, according to the US Geological Survey.
The monthly average price of graphite exported by China was $1,133 per metric ton in September, a 33.2% year-over-year decline, according to S&P Global Market Intelligence data. However, North America-based producers expect their products to include a premium. Nouveau Monde's Desaulniers told Commodity Insights in August that the premium is expected to be between 30% and 50%.
The controls are not expected to have an immediate impact on supplies of graphite outside China, according to analysts.
"Miners will continue to send graphite for processing to China as there is very little spare capacity anywhere else. Korean or Japanese battery-makers will continue to buy refined graphite from China for the very same reason," said Lukasz Bednarski, principal research analyst of lithium and battery metals at Commodity Insights.
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