China’s Graphite Curbs Send Green Warning Shot

(Reuters Breakingviews) – China is hitting the West where it really hurts, or at least showing that it can. The People’s Republic announced on Friday it will impose export licence requirements on some graphite products that go into electric vehicle batteries. It’s a tit for tat, following fresh U.S. curbs on chip exports. With nearly all the global processing capacity of the iron black stuff in Chinese hands, global carmakers will struggle to diversify.

Graphite, both in natural and synthetic form, is essential to build an anode, a component that allows electric current to flow through a battery. Global demand for graphite, seen at 770,000 tonnes this year, is expected to treble by 2033, according to estimates by Fastmarkets graphite analyst Georgi Georgiev.

China currently accounts for 64% of the global production of natural graphite and more than half of the artificial equivalent. More importantly, the People’s Republic refines more than 90% of the graphite into high-purity material used in EV batteries.

Under the new Chinese restrictions, which will start from Dec. 1, China will demand that exporters apply for a licence. This echoes the approach China used earlier this year to restrict exports of gallium and germanium, two metals used in chips and fibre optic cables, triggering a fall in international shipments.

The new rules do not necessarily mean that China is going to stop selling graphite to the world. This would hurt domestic anode makers such as Shanshan and Shanghai Putailai New Energy Technology which have already committed billions to build factories in Finland and Sweden. But Beijing could use the licence restrictions selectively to slow down attempts by Western players to replicate China’s EV supply chain abroad. Mining graphite in Europe, which wants to lead in EV adoption, is simply more expensive, says Aiden Lavelle, CEO of miner European Green Metals.

Bringing new mines to commercial production in Europe could take five years or longer, depending on permits, experts say. And building new refining facilities would be highly energy-intensive. Carmakers committed to the green transition like Volkswagen (VOWG_p.DE), Tesla (TSLA.O) and others do not want to wait for Europe and the U.S. to get up to speed — and China has just reminded the world of that.

China will require export permits for some graphite products to protect national security, its commerce ministry said on Oct. 20.

China is the world’s top graphite producer and exporter and also refines more than 90% of the world’s graphite into the material that is used in virtually all EV battery anodes, which is the negatively charged portion of a battery.