Analysis: Global EV battery supply chain puzzles over China graphite curbs

Resonac Holdings

27/10/2023 11:52

SHANGHAI, Oct 27 (Reuters) - Beijing's move to restrict
graphite exports will have a disproportionate impact on foreign
makers of electric vehicle battery components who have not yet
shifted to using as much synthetic material as Chinese
counterparts, industry insiders and experts said.
    China's latest limit on critical mineral exports, which
Beijing said is not targeted at a specific sector, has fuelled
uncertainty in the global EV supply chain since it was announced
last Friday.
    Some Chinese manufacturers, including those with operations
overseas, said they expect limited impact from the rules as most
EV batteries they make use a grade of synthetic material that is
unaffected by the curbs.
    China dominates the global EV battery supply chain including
production of graphite - the single largest component. Graphite
companies in the country process both the natural material mined
domestically and overseas, as well as synthetic forms.
    Japan, South Korea and the United States are top buyers of
both natural and synthetic Chinese graphite, and analysts warned
the new measures could slow or reduce graphite supplies needed
by companies there to produce anodes - the negative electrodes
of EV batteries.
    Under the new rules, China will require export permits
starting Dec. 1 for high-end synthetic graphite, as well as key
forms of natural graphite.  
    Several executives in China and globally at companies that
use graphite said they were still seeking further clarity on the
new measures.
    An employee at Qingdao Haida, a major Chinese graphite
processor, who declined to be named as they was not authorised
to speak on behalf of the company, told Reuters that the
company's products include spherical graphite, which is used in
lithium ion battery anodes and is covered by the new rules and
is exported to South Korea and Japan.
    "We haven't got any instructions from MOFCOM (China's
Ministry of Commerce) on how to apply for export permits but it
will definitely make the exporting process more inconvenient,"
the person said.
        Haida did not immediately respond to a request for
comment.
    China's recent move to require export permits for gallium
and germanium products has choked off international shipments of
the chipmaking metals.
    The commerce ministry did not respond to further queries
from Reuters. A source familiar with the Chinese government's
thinking noted that graphite was also used in military
equipment. 
    
    CHINA'S SYNTHETIC PUSH
    But Chinese companies, which have been building overseas
plants, said the restrictions will have little effect on their
operations abroad. The Chinese firms use synthetic graphite, but
not the high grade form covered under the new measures, with a
density of 1.73 grams per cubic centimetre and above.
    China produces large quantities of synthetic graphite, which
enables lower battery charge times.
    While adoption among foreign manufacturers is growing, their
shift from natural to synthetic graphite has been slower, in
part because it is more polluting to produce petroleum-based
synthetic graphite and natural graphite anodes also tend to be
cheaper, which makes them vulnerable to the Chinese curbs. 
    Volkswagen-backed Chinese firm Gotion High Tech  002074.SZ ,
which produces batteries in Germany and plans a U.S. plant, said
graphite used in its batteries has a density lower than 1.7
grams per cubic centimetre, which would make it unaffected by
the restrictions. 
    Similarly, BTR New Material Technology  835185.BJE , the
world's largest anode producer, told Shanghai government-run
media outlet The Paper that the rule's impact on it would be
limited, as its products have a density of between 1.5 and 1.7
gram per cubic centimetre for EV batteries.
    Ningbo Shanshan  600884.SS , another leading Chinese anode
maker, told The Paper that the restrictions would have no impact
on its exports of artificial graphite products.  
    BTR and Shanshan, which have announced plans to build
factories in Indonesia and Finland, respectively, did not
immediately respond to requests for comment from Reuters.     
    
    NATURAL GRAPHITE HIT
    Global companies using natural graphite include Hitachi
Chemical, part of Japan's Resonac Holdings Corp  4004.T , South
Korea's POSCO Future M  003670.KS  and Japan's Mitsubishi
Chemical, which produces natural graphite at two plants in
China, according to research firm CRU Group.
    A Resonac spokesperson said it did not see any impact for
now and was watching the situation. He declined to comment on
details of graphite procurement, but said there were various
routes, depending on individual products.
    Mitsubishi Chemical did not respond to a request for
comment, and POSCO declined to comment. 
    Australia-based Tesla supplier Syrah Resources, which mines
graphite in Mozambique and is building a plant to produce anodes
in the U.S. state of Louisiana, said on Thursday it expects
buyers outside of China to step up purchases of natural graphite
ahead of the stricter controls taking effect.
    India's Epsilon Advanced Materials (EAM) said this week it
plans to open a $650 million plant to make battery materials and
components including synthetic graphite in the U.S. state of
North Carolina, and is in talks with suppliers about sourcing
raw materials including natural graphite.
    "We believe that limiting the amount of graphite exported
from China - and likely the price increase for graphite that it
will create - exacerbates the challenges (and) exemplifies the
need to develop synthetic graphite for the U.S. locally," EAM
CEO Sunit Kapur told Reuters.
   

 (Reporting by Zhang Yan, Siyi Liu and Brenda Goh; Additional
reporting by Satoshi Sugiyama in Toyko, Heekyong Yang in
Seoul，Paul Lienert in Detroit, and Jing Xu in Beijing
Editing by Dominique Patton, Tony Munroe and David Evans)
 ((Zoey.Zhang@thomsonreuters.com;))