Column: China ups critical minerals heat with graphite controls: Andy Home

Renascor Resources

23/10/2023 14:37

By Andy Home
       LONDON, Oct 23 (Reuters) - China is upping the critical
minerals stakes by curbing exports of graphite, a key raw
material in electric vehicle batteries. 
    The West can't say it wasn't warned. 
    When China announced restrictions on exports of gallium and
germanium in July, former Vice Commerce Minister Wei Jianguo was
quoted in the China Daily as saying it was "just the start" if
the West continued to target China's high-technology sector. 
    Restricting the flow of two metals used in the manufacture
of silicon chips was "a well-thought-out heavy punch" in
reaction to the U.S. Chips Act, Wei said. 
    The Biden administration has since tightened restrictions on
the flow of advanced artificial intelligence chips to China,
announcing on Friday a new raft of measures aimed at closing
previous loopholes. 
    China is responding in kind, this time taking aim at the
West's electric vehicle (EV) ambitions. 
    There is much potential for further escalation in this
unfolding critical minerals battle between China and the West.
    
    CRITICAL INPUT
    Graphite has slipped under the radar in the broader critical
raw materials debate. China's control of other battery inputs
such as cobalt, nickel and lithium has grabbed the headlines. 
    Those are all used to make the battery cathode. It won't
work, however, without an anode, which is invariably made of
graphite. 
    Indeed, graphite is the largest EV battery component by
weight, typically accounting for between 50 and 100 kg. 
    China is the dominant player in the global supply of both
natural graphite and synthetic graphite, which has been taking
an increasing share of the market. 
    The country accounts for around two-thirds of all natural
graphite production and, according to consultancy Benchmark
Minerals, supplies around 98% of the world's synthetic graphite
anodes.
    The West's dependency on Chinese supply has seen graphite
recently join the likes of cobalt and rare earths on the U.S.
Department of Energy's list of super-critical raw materials.
    The U.S. and its metals allies are investing in non-Chinese
supply. 
    The Department of Defense awarded $37m in July to Graphite
One  GPH.V  to accelerate a feasibility study on its Graphite
Creek project in Alaska, thought to be one of the largest 10
identified deposits in the country.  
    Australia has used its A$2 billion Critical Minerals
Facility to lend A$185 million to Renascor Resources'  RNU.AX 
Siviour graphite project and A$40m to EcoGraf Ltd's  EGR.AX 
battery anode plant. 
    However, none will be in operation by the start of December,
when China's export restrictions come into place. 
    
    SQUEEZING SUPPLY
    The big question is how tightly China will squeeze the
graphite export pipeline. 
    It's worth noting the ban is not on all forms of graphite.
The new measures, which prohibit any exports without a licence,
cover high-purity synthetic graphite and natural flake graphite,
including spherical and expanded forms. 
    Previous restrictions on lower-grade graphite exports
destined for the steel and lubricants sectors have been
rescinded. 
    The curbs are clearly targeted at the EV battery sector but
which parts? 
    If gallium and germanium are anything to go by, expect a
flurry of export activity in the run-up to the Dec. 1 deadline
and then a collapse in activity. 
    Some Chinese companies have received their licences and many
more applications are under review but the process has
essentially halted exports of both metals for the time being.
Prices of both have unsurprisingly increased. 
    The world's graphite supply chain could well be in for a
similar short-term shock.  
     
    JAW-JAW OR WAR?
    Western governments are still evaluating their response,
waiting like the rest of us to see how China's graphite volumes
play out in the coming months. 
    One potential avenue would be challenge the export curbs at
the World Trade Organization (WTO), an option the Japanese
government is already evaluating. 
    This was a tactic successfully used when China cut off
exports of rare earths in 2010. A joint complaint by the U.S.,
the European Union and Japan was upheld in 2014 and China was
forced to back down. 
    Indeed, the Obama administration launched multiple
complaints against China at the WTO and won all of them other
than the last, which challenged the country over its subsidised
aluminium industry. 
    The Trump administration, by contrast, was outright hostile
to the WTO and preferred unilateral trade action such as the
Section 232 tariffs on imports of steel and aluminium. 
    The Biden administration has so far been equally dismissive.
When the WTO last year upheld China's complaint about the
Section 232 tariffs, Assistant Trade Representative Adam Hodge
rejected the finding as "flawed" and said "these WTO panel
reports only reinforce the need to fundamentally reform the WTO
dispute settlement system."
    While the European Union and Japan might prefer to use the
old world order trade dispute system, the U.S. quite evidently
won't be leading the way. 
    Rather, the more likely response will be to double down on
the country's already heavy investment in building out a
domestic critical mineral supply chain and working with allied
countries to source what it cannot produce itself. 
    With no sign of any let-up in the campaign to cut off the
flow of high-end chips to China, the risk of further heavy
counter punches in the metals sector looks high. 
    If gallium and germanium were, to quote China's Wei, "just
the start", graphite is unlikely to mark the end of this
escalating global tit-for-tat. 
         
    The opinions expressed here are those of the author, a
columnist for Reuters

 (Editing by David Evans)
 ((andy.home@thomsonreuters.com, 44-207-542-4412 and on Twitter
https://twitter.com/AndyHomeMetals))