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China’s New Export Ban on Graphite Send Shockwaves Through EV Industry

China's latest move to restrict graphite exports, citing national security concerns, is poised to disrupt the electric vehicle (EV) battery supply chain. This comes amidst a global surge in EV sales

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China has recently announced new restrictions on the export of graphite, a pivotal mineral used in electric vehicle (EV) battery production. This move, based on national security reasons, was made public by the country’s Ministry of Commerce and General Administration of Customs. Interestingly, this decision follows shortly after the U.S. decided to further restrict the sale of certain semiconductors to Chinese companies.

This evolving dynamic showcases the tension in trade relations where actions from one country are met with reactions from another. As Stefan Legge from the University of St Gallen points out, it’s a classic example of “every action having a reaction.” Yet, he also observes that both parties understand the economic repercussions that arise when geopolitical considerations override economic priorities.

China, which is at the forefront of global graphite production, will introduce the requirement for export permits from December. This will apply to various forms of graphite, including synthetic variants and natural flake graphite.

With the EV market booming, automakers are searching for graphite supplies beyond China. This surge in demand is supported by data from the International Energy Agency which shows a significant rise in global EV sales. Sales spiked by 55% from 2021, reaching 10 million units last year, and are projected to approach 14 million this year.

Further emphasizing China’s influential role in the graphite market, the US Geological Survey reports that the demand for battery-grade graphite has ballooned by 250% worldwide since 2018. Of this, China was responsible for a whopping 65% of production in the previous year. In addition to its application in EVs, graphite is also a key component in several industries, including semiconductor, aerospace, chemical, and steel.

China’s recent export limitations come amidst increasing scrutiny from several countries regarding its trade and commercial behaviors. The ongoing technological competition with the U.S. and its global allies, particularly concerning semiconductor resources, is a case in point. Previously, China had placed export limitations on gallium and germanium, both vital for semiconductor production, leading to a drastic reduction in its global shipments.

Ivan Lam of Counterpoint Research offers some insight into China’s graphite export history. He notes that China has placed temporary restrictions on graphite exports in the past without major repercussions for the industry. While the new regulations don’t amount to a full embargo, Lam forecasts a likely surge in prices. He attributes potential future price hikes to supply-demand imbalances, further exacerbated by situations like the Russia-Ukraine conflict which disrupted Russia’s role as a major graphite provider.

China’s dominance extends beyond graphite. The nation plays a pivotal role in the global supply chain for crucial EV battery minerals. The US Department of Energy reports that China processes a significant portion of the world’s lithium and cobalt, essential components for these batteries.

Thus, as the world races towards cleaner and more sustainable energy solutions, the tug of war over critical resources underscores the complexities of global trade and geopolitics.

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