Graphite anode supply chain localization proceeding but challenges remain

Supply chain localization of the graphite industry is a trend that is expected to continue in 2024 amid ongoing geopolitical tensions and excess capacity in Mainland China, the major holder of the global anode supply. Challenges remain, however, sources told Fastmarkets

Investment in integrated natural graphite anode projects outside of Mainland China, namely in Africa, Australia and North America has increased on improved demand outlook dating back to 2020 and 2021, sources said.

The planned capacity for integrated anode production outside China totaled 814,250 tonnes based on Fastmarkets’ estimates, though most are in their initial stages.

A fundamental driver behind the shift to ex-China anode capacity may a push from downstream users to identify alternative sources and mitigate risks associated with having only a single source, a graphite trader said.

“Higher freight costs in 2020-2021 due to the Covid-19 pandemic led to the initial shift in demand for [alternative graphite sources]. Additionally, skyrocketing freight costs from Asia to Europe amid the ongoing Red Sea crisis since the end of 2023 have exacerbated the awareness of supply chain [insecurity],” the trader said.

A second trader source said, “We experienced price increases for Chinese materials due to the freight increases, but, basically, raw material costs are still stable. There is interest from customers for material of non-Chinese origin, which is mainly a result of the freight prices.”

There has been increasing interest among European consumers to source material from east Africa so it can be transported around the southern tip of Africa to mitigate disruptions, a third trader said.

The proportion of flake graphite imports from China to the European Union dropped to 23% from January to November in 2023, compared with 31% the same period of 2021. The proportion imported from Mozambique increased to 20%, while that of Madagascar increased to 16% compared with 11% for both sources over the same period, according to Global Trade Tracker.

“The paradigm shift in [the graphite market] will remain a trend in both traditional refractories and the new energy sector, with nations seeking to localize their graphite supply chains and consumers trying to reduce their reliance on just one major source,” a producer of graphite outside of China said. “We have consumers in Japan who said that they would like to shift more demand to [suppliers in] Africa from China, especially after China issued export controls on certain graphite products.

Rising geopolitical uncertainty

Governments in the United States, EU, South Korea and China have adopted measures to secure the supply of graphite due to its critical role in lithium-ion batteries, a key component in the ongoing global energy transition, sources told Fastmarkets.

Graphite remained on the latest US critical mineral list, initially published in 2022. The European Commission has also included synthetic graphite to its list of strategic and critical raw materials outlined in its Critical Raw Materials Act in November, with natural graphite already on the list.

US and European governments have sought to alleviate their reliance on China for the supply of natural and synthetic graphite materials, especially after China imposed export controls on certain graphite products starting from December 1 2023, sources said.

“We had already shifted our purchasing of graphite for [customers in] Europe and US to Africa from China. We made this decision before the export controls were implemented, and we have already seen the benefit of doing so,” a third trader source said.

With flake graphite (HS Code 25041010) and spherical graphite (HS Code: 25041091), both of which are raw materials for natural graphite anodes, listed on China’s export control list, one should pay attention to any unforeseen geopolitical event, which might further affect the exports of these materials, a fourth trader said.

“For now, we have not seen any impact from the new export policy, but this might be due to the fact that currently the markets are calm and there is no demand,” a fifth trader said, “Considerable uncertainty remains about how the export controls will be implemented and their implications.”

A sixth trader source said, “Demand for ex-China sources [of graphite] is increasing quickly. Some customers who originally rejected qualifying non-Chinese sources are now actively and aggressively reconsidering that stance.”

Furthermore, the Inflation Reduction Act signed into law in August 2022 in the US provides tax incentives to source critical battery raw materials domestically within the US or from free trade partners, triggering increasing investments in battery supply chain construction outside China.

US President Joe Biden announced that the US Department of Energy (DoE) would be awarding $2.8 billion in grants to 20 manufacturing and processing companies for projects across 12 states to expand domestic manufacturing of batteries for electric vehicles and the electrical grid from the Bipartisan Infrastructure Law signed in October 2022.

Among the 20 companies funded by the President’s Bipartisan Infrastructure Law, Syrah Technologies, an integrated natural graphite anode producer in the US has secured $220m grant from the DoE in October 2022. In July 2022, the DoE’s Loan Program Office issued a $102.1 million loan to Syrah Technologies for the expansion of its anode facility in Vidalia. 

Battery industry’s inflection point: Challenges remain

However, the supply chain transformation is not without challenges against the backdrop of bearish sentiment in the graphite market, geopolitics and supply chain construction outside China, sources told Fastmarkets.

“The battery industry is at an inflection point. Be it for suppliers outside China or Chinese suppliers planning to invest overseas, there are concerns over financing, controlling costs, improving environmental, social, and governance standards in mining and refining, and addressing geopolitical factors to be complaint with local policies,” an anode producer said.

For producers outside of China, the challenges might lie in the fact that falling graphite prices due to slow demand and oversupply in China have dampened investor appetite for new project investment considering a lower short-term return on investment. In addition, high costs associated with having capacity not at the same scale compared with Chinese producers make emerging producers less attractive among downstream consumers and investors, a miner outside of China said.

“Currently, Chinese downstream graphite producers have the advantage of low costs brought about by producing at-scale. This has made the movement from junior to commercial producer difficult to achieve for miners outside of China,” the miner said. “What is needed [for ex-China miners] is a commitment to off-take agreements at premium incentive prices or the provision of pre-paid funding needed for the financing of upstream assets leading into the construction phase.”

Fastmarkets’ assessed price for flake graphite -194 dropped by 33.43% over the course of 2023, while that of uncoated spherical graphite plunged by 20.75%, with the downtrends continuing in the first month of 2024. Both are major raw materials for graphite anode production.

Fastmarkets’ latest price assessment for graphite flake 94% C, -100 mesh, fob China was $510-538 per tonne on Thursday January 18, down by $28.5 per tonne at the midpoint, or 5.16%, from $530-575 per tonne on December 28.

Fastmarkets’ price assessment for graphite spherical 99.95% C, 15 microns, fob China was $1,900-2,200 per tonne on Thursday, falling by $50 per tonne at the midpoint or 2.38%, from $2,000-2,200 per tonne on January 4 2024.

For Chinese producers, it has also been a trend to build up supply chain in local markets to meet demand and transfer the capacity to the domestic market, a second anode producer said.

Major anode producers Shanghai Shanshan Technology, BTR New Materials Group and Putailai have already set up projects outside China in Finland, Indonesia and Sweden in response to the local demand.

“Despite the advantages of industry know-how, cost control and raw material supply domination, Chinese producers are still facing challenges related to the local environmental regulations, political stability and foreign investment-related policies in China,” the source said.

Understand the dynamics of the graphite market

Keep up with the latest news, market intelligence and trends in the graphite market when you visit our dedicated graphite market page.

Get an in-depth, 10-year view into where and when graphite supply will come online with our graphite long-term forecast.

What to read next
Fastmarkets spoke with Canada-based Northern Graphite CEO Hugues Jacquemin on North American graphite, the electric vehicle (EV) industry and the need for a North American supply chain on Wednesday July 17
After initial market turbulence when China introduced export controls on gallium, germanium and graphite last year, a new normal has settled into the international markets for these metals, market participants have told Fastmarkets
Discover how geopolitical factors influence the supply chain and the energy transition in our interview with Trafigura CEO, Jeremy Weir
Rapidly expanding capacity for the recycling of lithium-ion batteries in the United States and Canada has raised worries over the supply of raw materials to feed processors in the region, sources have told Fastmarkets
Chinese mining giant CMOC reported a 178% year-on-year increase in cobalt metal production for the first six months of 2024, according to an announcement by the company on Friday July 12
Analysis by UK-based industry group ChargeUK shows that there are now more than 930,000 public, home and workplace charging points for electric vehicles (EVs) across the nation, supporting 1.1 million such vehicles