Amid tensions between the U.S. and China, domestic businesses are growing increasingly anxious as China includes graphite, a crucial component for secondary batteries, in its export control list. This move towards controlling not just gallium and germanium but also graphite by China in the second half of the year is seen as an overt step towards “weaponizing resources.”
The materials slated for export control by China’s Ministry of Commerce and the General Administration of Customs starting December include high-purity natural graphite used for secondary battery cathodes such as flake graphite; and materials and products of synthetic graphite with a purity exceeding 99.9%, tensile strength over 30 Mpa, and density exceeding 1.73 g/cm³.
This move is detrimental news for both the domestic secondary battery industry, which uses graphite as a cathode material, and the steel sector, which uses graphite in electrode rods during the electric refinement processes. Following the Chinese government’s export control measures, Chinese companies must undergo a procedure verifying whether graphite is a military item before exporting it.
China produces over 80% of the world’s graphite supply. Superior refining and graphite processing technologies in China, combined with environmental concerns arising from the chemical separation processes, have heightened reliance on China. China’s latest actions are interpreted as a countermove to the U.S.’s measures to curb China’s advanced industries.
Although the official stance of China’s Ministry of Commerce is that “the measure is not targeted at specific countries,” the main consumers of Chinese graphite suggest the measure might target countries participating in the U.S.-led Indo-Pacific Economic Framework. Reuters reported, “The top buyers of Chinese graphite include South Korea, the U.S., Japan, and India.”
According to the Electric Vehicle Subsidy Guidelines under the Inflation Reduction Act (IRA) unveiled by the U.S. government on Sept. 31, battery components or core minerals from Chinese companies will be excluded from subsidy eligibility if they exceed a certain percentage. As of last February, data from South Korea’s Ministry of Trade, Industry, and Energy indicated that South Korea relies on imports from China for 84% of its lithium hydroxide, 69% of its cobalt hydroxide, and 72% of its natural graphite.
South Korea imported approximately US$241 million worth of graphite for secondary battery cathodes last year, with a staggering 93.7% dependence on Chinese supplies. This shows South Korea’s potential vulnerability to China’s export control strategy, even within the U.S.’s supply chain alliance.
Following China’s announcement, South Korea’s Ministry of Trade, Industry, and Energy, which held an “Industry Supply Chain Review Meeting,” announced on Oct. 22 that while there isn’t an outright export ban, the more rigorous export permit procedures will likely prolong import periods. Therefore, it aims to proactively secure stockpiles and maintain open channels of communication with China’s Ministry of Commerce to ensure smooth supply.
There’s also a plan to diversify graphite import sources and reduce dependency on China by prioritizing domestic production of synthetic graphite. To support this, the government will actively back a synthetic graphite production plant slated for operation next year and long-term supply contracts with mines in third countries like Tanzania. Fortunately, POSCO FUTURE M (formerly POSCO Chemical) achieved domestic production of synthetic graphite cathode materials last year. Although entirely dependent on imports until last year, domestic procurement of synthetic graphite is now possible. It was confirmed that the company’s factory plans to commence operations earlier than the initially scheduled 8,000 tons in the first half of next year. The process utilizes “coal tar,” a byproduct of the steel process, available for procurement domestically.
POSCO FUTURE M plans to start early production of 3,000 tons in the first half of next year, eventually initiating the operations of its 8,000-ton first factory. By the end of this year, through the expansion of the second factory, it plans to increase production to 18,000 tons by 2025 and 150,000 tons by 2030.
Meanwhile, through spokesperson Ben Lavoie, the U.S. government announced its commitment to collaborating with allied nations to ensure a stable supply chain in response to China’s intensified graphite export control. The U.S. relies on China for 73.3% of its refined graphite imports. In essence, this is interpreted as a move to strengthen supply chain collaborations with friendly nations through initiatives such as the Indo-Pacific Economic Framework, which was launched last year and includes 14 countries, including South Korea.