Buyers of Chinese graphite stockpiled inventory before new export controls by the Chinese government came into effect in December 2023, analysts and industry participants told S&P Global Commodity Insights.

Chinese exports of natural graphite and its processed battery-grade relative, spherical graphite, spiked 161.9% to 56,763 metric tons in November 2023 compared with the monthly average for January to October 2023, according to data from the S&P Global Market Intelligence Global Trade Analytics Suite (GTAS).

China started requiring permits for the critical battery material on Dec. 1, 2023, in what may be an effort to move up the graphite value chain, according to analysts. Exports slowed in December 2023, dropping to 5,413 metric tons, 75% below the monthly average for January to October 2023.

"Buyers outside of China requested their products to be shipped in November as a precautionary measure to buffer delivery disruptions, particularly as these players were uncertain on the stringency of the export license approval processes and concerned regarding the subsequent disruptions of this," Yuan Gu, senior graphite analyst at Benchmark Mineral Intelligence, told Commodity Insights.

Graphite dominance

China is estimated to have produced 62% of the world's flake graphite and 91% of battery anode material in 2023, according to an October 2023 forecast by Benchmark. The country's dominance in the sector means a curb in exports could seriously impact the global battery value chain.

Customers for Chinese graphite include industrial markets and a few Japanese and South Korean companies that make anode precursors or active anode material, Shaun Verner, managing director and CEO of Syrah Resources Ltd., told Commodity Insights in November 2023. South Korea took 35.7% of China's exported natural and spherical graphite during the fourth quarter of 2023, followed by Japan with 29.5% and India with 7.8%, GTAS data showed.

After the export controls were announced, the South Korean industry ministry sought supply alternatives, according to media reports. Uncertainty over the measure's implementation and possible delays in export permit approvals made buyers boost purchases in November, analysts said.

The export permits require exporters to provide details on the purchaser, the purchase contract and the delivered graphite's end use. China regulators have publicly stated the measures are not aimed at restricting outflow to certain countries, but a few countries have yet to receive permits, analysts said. Traders seem to be left out of the market completely as they often do not have an end-use customer to provide the Chinese government. However, direct consumers of graphite should not have a problem.

"Most companies do not see the new licenses as a challenge for the market in the short term," James Willoughby, senior research analyst at Wood Mackenzie, said in an email response.

The US imported 4,057 metric tons of graphite from China in the fourth quarter of 2023, and it has not received a permit. The Biden administration limited battery-makers' ability to buy from China with its "foreign entities of concern" proposed regulation in late 2023.

"Syrah understands limited export licenses were granted in January 2024, primarily on a shipment by shipment basis, and only to major [anode active material] and anode precursor suppliers exporting to certain countries including South Korea and Japan but not US, Germany and India," a representative of Syrah Resources told Commodity Insights in an email.

The decline in exports in December may be more due to new paperwork requirements than any efforts by China to restrict outflow.

"As with any changes to trade regulations, there is a significant amount of new paperwork to be processed by both the individual companies and the Chinese government, which inevitably results in delays," Willoughby said.

Domestic graphite

Graphite producers outside China told Commodity Insights in November 2023 that the measure could be a way for the country to assert its market position and boost its domestic battery supply chain. Wood Mackenzie's Willoughby and Syrah Resources agreed that the measures may help China expand its domestic processing capacity for graphite.

"The government has likely assessed that it could benefit from upgrading the spherical graphite to coated spherical graphite, the active anode material, or even final battery cells before exporting it," Willoughby said.

With uncertainties abounding, market reactions to the new export controls "could certainly drive the localization of the graphite supply chain outside of China," Benchmark's Gu said.