Graphite ‘a choke point’ for the US and EU

Graphite’s importance to the battery supply chain hasn’t necessarily been reciprocated with ASX investment, with graphite stocks underperforming in recent times.

While graphite prices have been down, with flake graphite currently trading at 13 per cent year-on-year lows in China according to Asian Metal, Benchmark Mineral Intelligence believes the critical mineral is “arguably an overlooked part of the battery supply chain”.

Benchmark said graphite is just one of many critical mineral markets navigating supply diversification quandaries driven by China’s market dominance.

“There are different sorts of (critical mineral) export restrictions (being introduced by China), and in the case of natural and synthetic graphite, the Chinese Government has introduced a licencing requirement that became effective from December 1 of last year, under which exporters need to apply for permits,” Benchmark principal policy analyst Bryan Bille said.

“These export restrictions have had relatively limited impact, but they definitely highlighted China’s dominance across the graphite anode supply chain, which is arguably an overlooked part of the battery supply chain.”

Bille said the graphite export restrictions were introduced by China to enable “state supervision for national security”.

“(The export restrictions) do not officially target any country or industry, which is a distinct characteristic of China’s use of economic coercion because it makes it difficult to challenge in legal terms,” he said.

“At the same time, it’s fair to say that these trade restrictions in critical minerals and graphite are the result of the ongoing US and China geopolitical and tech competition and Western attempts to reduce dependence on China.

“On top of that, Chinese officials have numerously referred to the weaponisation of critical minerals.”

Bille said graphite’s importance has been recognised by the US and European Union, which are harbouring concerns of future supply.

“Looking specifically at the US and the European Union – two major markets – both have identified graphite as a choke point in the battery supply chain and have included it in their supply localisation and diversification policies, which are both aimed at reducing their dependencies on China,” Bille said.

“The financial incentives in the Inflation Reduction Act … have been driving graphite supply localisation and onshoring.”

The IRA offers a tax credit to consumers who purchase an electric vehicle which contains critical minerals and components that are locally sourced from the US or from US free trade partners.

“It (the IRA) also prohibits manufacturers from sourcing battery components from this year and critical minerals from next year from foreign entities of concern, including China,” Bille said.

Further supporting efforts to diversify the graphite supply chain, in May the US Government announced the introduction of a 25 per cent import tariff on natural graphite from China. This will come into play in January 2026.

“This is in response to China’s unfair trade practices and to protect domestic industries,” Bille said.

While graphite stocks might not show it, the anode material is seen as a critical commodity en route to net zero. How ex-China diversification pans out remains to be seen, but is it is expected to benefit Australia’s emerging wave of graphite miners.