China, the world’s largest graphite producer, announced on Friday (October 20) new restrictions on the export of certain types of graphite that are crucial for making electric vehicle batteries. This is its latest move to control the supply of critical minerals in response to challenges in manufacturing dominance.

China is the world’s largest graphite producer and exporter and also processes more than 90% of the world’s graphite into the material used in virtually all electric vehicle battery anodes, the negatively charged part of a battery.

Beijing is seeking the export permits at a time when many foreign governments are increasing pressure on Chinese companies over their industrial practices.

The European Union is considering imposing tariffs on electric vehicles made in China, arguing they unfairly benefit from subsidies.

Additionally, earlier this week the U.S. government expanded restrictions on Chinese companies’ access to semiconductors, including halting sales of more advanced artificial intelligence chips from Nvidia.

The ministry said the move was “conducive to ensuring the security and stability of the global supply chain and industrial chain and conducive to better protecting national security and interests.”

It added that it was not targeting any specific country. According to Chinese customs, the top buyers of graphite from China include Japan, the USA, India and South Korea.

Under the new restrictions, starting December 1, China will require exporters to apply for permits to ship two types of graphite, including synthetic graphite material with high purity, high hardness and high intensity, and natural flake graphite and its products.

Three types of “highly sensitive” graphite items have already been temporarily checked, the Commerce Department said, and are included in the new list.

Meanwhile, temporary controls have been lifted on five less sensitive graphite items used in basic industries such as steel, metallurgy and chemicals.

The new measures would ensure domestic supplies of graphite for military purposes, such as the aerospace sector, as well as for domestic battery manufacturing, said Chang Ke, an analyst at consultancy Mysteel.

As electric vehicle sales rise, automakers are scrambling to secure supplies from outside China, but shortages are looming.

“It is a restriction on the outflow of EV material as many new energy companies are increasingly building more plants overseas,” Chang said.

Shares of China’s new energy vehicle and battery makers rose after the announcement.

Similar restrictions for gallium and germanium

The restrictions are similar to those in place since August 1 on two chipmaking metals, gallium and germanium. The restrictions have recently severely limited exports of these metals from China and driven up prices outside the country.

Analysts said it was not clear what impact the new measures would have on graphite in the near term.

“This control is not a complete ban, and during the previous temporary control there was no significant impact on any industry,” said Ivan Lam, senior analyst at Counterpoint Research.

Mysteel said natural flake graphite prices were at 3,950 yuan ($539.62) per tonne this week, down 25.5% from earlier this year due to declining demand from the electric vehicle sector.

However, Counterpoint’s Lam said graphite prices are likely to rise in the future “due to imbalances between supply and demand, including Russia, which was one of the largest suppliers of graphite before the Russia-Ukraine war.”

China has reduced natural graphite mining in recent years to protect the environment and has instead increased production of synthetic graphite since 2021. According to Mysteel, the synthetic form now accounts for 70% of Chinese production.

Tensions in trade and technology

Trade and technology have been at the center of simmering tensions between Beijing and Washington in recent years.

The European Union has also signaled that it wants to reduce its dependence on trade with China in technology and other areas. This month the company launched an investigation into Beijing’s subsidies to domestic electric vehicle makers after allegations that their cheap products undercut European rivals.

The EU is also considering a separate investigation into Chinese support for its wind turbine manufacturers.

Beijing has expressed “strong dissatisfaction” with the EV investigation and denied that its support for other industries is unfair.

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