China’s commerce ministry announced restrictions on exports of key electric vehicle battery metal graphite on Friday, days after the United States imposed tighter restrictions on shipments of artificial intelligence chips to the country.
The country will now require export permits for some graphite products, a move it said aims to protect national security.
China is the world’s top graphite producer and exporter. It refines more than 90% of the world’s graphite into the material that is used in virtually all EV battery anodes (the negatively charged portion of a battery).
China’s commerce ministry said the move was “conducive to ensuring the security and stability of the global supply chain and industrial chain, and conducive to better safeguarding national security and interests”.
It added that it was not targeting any specific country.
Beijing’s move comes amid a bitter trade and technology war with the West, with many foreign governments increasing their pressure on Chinese companies over their industrial practices.
The European Union is weighing levying tariffs on Chinese-made EVs, arguing they unfairly benefit from subsidies.
Top buyers of graphite from China include Japan, the United States, India and South Korea, according to Chinese customs data.
Graphite shortages imminent
Under the new restrictions, China will require exporters to apply for permits to ship two types of graphite, including high-purity, high-hardness and high intensity synthetic graphite material, and natural flake graphite and its products.
Three types of “highly sensitive” graphite items had already been under temporary controls, the commerce ministry said, and are included in the new list.
Meanwhile, it dropped temporary controls on five less sensitive graphite items used in basic industries such as steel, metallurgy, and chemicals.
The new measures, which come into effect from December 1, will ensure the domestic supply of graphite for military use, such as in the aerospace sector, as well as domestic battery-making, Chang Ke, an analyst at consultancy Mysteel, said.
With rising sales of electric vehicles, automakers are racing to lock in supplies from outside China, but shortages are looming.
“It’s a restriction on EV material flowing out as many new energy companies are increasingly building up more plants overseas,” Chang said.
Graphite prices ‘likely to rise’
Shares in China’s new energy vehicle and battery makers rose after the ministry’s announcement.
China’s curbs on graphite are similar to those it imposed on two chip-making metals, gallium and germanium, since August 1.
The restrictions have slashed exports of those metals from China recently and pushed up prices outside of the country.
Analysts said it was not clear how much impact the new measures on graphite will have in the short term.
“This control is not a complete ban, and there has been no significant impact on any industry during the previous temporary control,” Ivan Lam, a senior analyst at Counterpoint Research, said.
Prices for natural flake graphite were 3,950 yuan (about $540) a metric ton this week, down 25% from the beginning of this year because of declining demand from the EV sector, according to Mysteel.
However, Counterpoint’s Lam said that graphite prices are likely to rise.
“We believe that the average price of graphite will continue to rise in the future due to supply and demand imbalances, including Russia, which was one of the major graphite suppliers before the Russia-Ukraine war,” he said.
China has reduced natural graphite mining in recent years to protect the environment, instead ramping up synthetic graphite output since 2021. The synthetic form now accounts for 70% of China’s output, according to Mysteel.
- Reuters, with additional editing by Vishakha Saxena