China’s graphite export ban to lead to sharp growth of global prices

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By Eugene Gerden

China will impose a ban on the exports of two types of graphite (synthetic and natural) and derivative materials from December 1, 2023 without a special license, that will be within the interests of state security, according to recent statements of the Chinese Ministry of Commerce and the General Administration of Customs.

According to the Institute for Energy Research (IER), China produces 61% of the world’s graphite and 98% of the ready-to-use material. According to Statista, 1.3 million tons of graphite were produced worldwide in 2022. The top five largest producers include China, Mozambique, Madagascar, Brazil and Russia. In 2022, 850,000 tons of graphite were produced in China.

China also supplies the majority of the EU’s graphite imports, according to the European Carbon and Graphite Association (ECGA). According to the US Geological Survey (USGS), from 2018 to 2021, China’s share in American imports of natural graphite was 33%, being higher of Mexico (18%), Canada (17%), Madagascar (10%) and others (22%). Neither the US nor the EU produces natural graphite on their territory.

According to the National Institutes of Health (NIH), 60 to 80% of synthetic graphite consumed in the United States was produced domestically. At the same time, the USGS recorded 10 deposits, either in which graphite was previously mined, or which could potentially become its source in the future.

Graphite is one of the main components of batteries, including for electric vehicles. According to Autoweek magazine, this mineral accounts for 25-28% of the materials used in batteries. According to calculations, 1 million electric vehicles require 75,000 tons of graphite. In the production of lithium-ion batteries, graphite is used 15 times more than lithium.

Previously, China has already limited exports of at least three types of graphite, requiring from potential exporters to obtain a special license.

Also in early July, China introduced similar restrictions on the exports of gallium and germanium. The regime came into force on August 1.

Analysts believe the imposition of the latest export restrictions will inevitably lead to the growth of global graphite prices, while Chinese consumers will be able to buy graphite on the domestic market a little cheaper than others. According to experts of the Russian Vedomosti business paper, China is gradually reducing the production of natural graphite and switching to the production of synthetic graphite. Analysts also believe consumers in South Korea and Japan could be hit the hardest as a result of Chinese restrictions.

Analysts also believe the main growth in demand in the coming years will be observed in the field of synthetic graphite, while natural graphite production will remain stable for the foreseeable future. The production of synthetic graphite will grow, and demand will be met through it.  At present synthetic graphite already accounts for about 50% of global graphite consumption, and the share will gradually increase to 70-80%.

The advantage of China and the dependence of North America from Chinese supplies could be explained by a good raw material base and a streamlined technological process. At the same time, some analysts expect amid the rapid building of significant battery capacity in North America, this could encourage local businesses to produce their own graphite. For example, there are large deposits in Canada, but they need to be developed, and this takes time.

China has long been using export controls in the field of minerals to put pressure on its opponents. An example of this is restrictions imposed by China on the export of rare earth metals in 2010 in response to Japan’s unfriendly actions in the East China Sea. These restrictions were then extended to both the US and the EU, which led to an investigation within the WTO. Most of interviewed analysts believe the current restrictions on graphite exports are Beijing’s response to technological warfare on the United States and its allies.

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