China is the world's top graphite producer and the raw material is essential for EV batteries.
ADVERTISEMENTChina will bring in requirements for export permits for some graphite products in an effort to protect its national security, said the country's commerce ministry on Friday.
The announcement comes at a time when foreign governments are increasing their pressure on Chinese companies over their industrial practices.
China is the world's top graphite producer and exporter and also refines more than 90% of the world's graphite into the material, which is used in virtually all EV battery anodes - the negatively charged portion of a battery.
Under the new restrictions, China will require as of 1 December that exporters apply for permits to be able to ship two types of graphite, including high-purity, high-hardness and high-intensity synthetic graphite material, and natural flake graphite and its products.
Meanwhile, it dropped temporary controls on five less sensitive graphite items used in basic industries such as steel, metallurgy, and chemicals.
"The new measures will ensure the domestic supply of graphite for military use, such as in the aerospace sector, as well as domestic battery-making," Chang Ke, an analyst at consultancy Mysteel, told Reuters.
Why graphite is important for the global economy
Natural graphite is classified as a critical raw material (CRM) by the EU, Japan, Canada and the US.
According to the International Energy Agency, graphite demand is expected to rise by 20-25 times in the 2020-40 period.
"High-sensitivity graphite is a high-performance material with a wide range of applications in industries such as semiconductors, automobiles, aerospace, battery manufacturing, and chemicals," Ivan Lam, senior analyst at Counterpoint Research, told Reuters.
However, many countries across the globe, Europe included, are relying on imports to meet their graphite demands.
Top buyers of graphite from China include Japan, the United States, India and South Korea, according to Chinese customs data.
Is the move part of a trade war?
China's latest move to control supplies appears to be a response to an escalating trade war between the Asian country and the US, as well as the EU.
The announcement came mere days after the US tightened controls on exports of semiconductors to China, including stopping sales of more advanced artificial intelligence chips made by Nvidia.
Meanwhile, the European Union is weighing levying tariffs on Chinese-made EVs, arguing they unfairly benefit from subsidies.
The new curb on graphite exports is similar to those in place since 1 August for two chip-making metals, gallium and germanium. The restrictions have slashed exports of those metals from China recently and pushed up prices outside the country.
"It would be a bold step to cut off the world from graphite because I think the Chinese know that would bring EVs to a halt everywhere and probably would create escalation rather than de-escalation of some of the trade disputes going on with China - between the EU and China, between the US and China," said Christopher Richter, Deputy Head of Research at CLSA in Tokyo, Japan.
Prices are likely to rise
While policymakers appear to weaponise their natural resources and products, the rising sale of electric vehicles is making automakers race to lock in supplies from outside China, to avoid upset supply chains, increased costs and disrupted production.
However, analysts said it is still unclear how far China would take this graphite export curb and how much impact the new measures on graphite will have in the short term. However, it appears likely that prices will be impacted.
ADVERTISEMENT"Graphite has a wide range of applications in industry, and the demand for its use is growing," Ivan Lam told Reuters. "We believe that the average price of graphite will continue to rise in the future due to supply and demand imbalances, including Russia, which was one of the major graphite suppliers before the Russia-Ukraine war."
Richter said it is also likely that manufacturers are diversifying their supply chains, including "looking for alternative sources as well as alternative materials".
Where else is good for graphite?
China produces two-thirds of the world’s graphite, but compared to global reserves, the Asian country is not the only option.
According to the United States Geological Survey, Turkey (27.3%) and Brazil (22.4%) together own half of the world's natural graphite resources.
China comes third, sitting on 16%, followed by Madagascar (7.9%), Mozambique (7.6%), Tanzania (5.5%) and Russia with more than 4%.
ADVERTISEMENTThe move could hit the US economy particularly hard as one-third of its graphite imports come from China. And it has few close allies among the alternative countries at the moment.
