Under the US Inflation Reduction Act (IRA), an electric vehicle (EV) may be eligible to up to $7,500 of tax credits for locally-sourced critical battery minerals and battery components. The law also prohibits manufacturers from sourcing battery components and critical minerals from Foreign Entities of Concern (FEOC) starting in 2024 and 2025, respectively. FEOCs include China, Russia, Iran and North Korea.
The final rules released by the US Treasury and Internal Revenue Service (IRS) on May 3 suggested that the agencies identified certain battery minerals that are impracticable to trace, including graphite and some critical minerals used in electrolyte salts, binders and additives, and would delay the restrictions on those materials until 2027.
Learn more about how the US is navigating critical mineral challenges in the global energy transition in our podcast episode with Helaina Matza, special coordinator for global infrastructure and investment at the US Department of State.
Chinese dominance on graphite supply
“The temporary exemption has made the policy more practical given China’s absolute dominance on graphite. It helps cushion the immediate effect of cutting off sources of anode raw material supply for battery and OEM (original equipment manufacturers),” one battery marker in South Korea said.
China holds a dominant role in terms of graphite anode feedstock supply, among all other battery raw materials.
Downstream users from anode makers to battery manufacturers and OEMs have been trying to construct local supply chains to reduce their dependence on China over the past couple of years. But it would take at least three years for those projects to realize commercial production, according to an anode producer in China.
“The previous rules under the FEOC would mean cutting off anode raw material sources for major battery makers outside China, especially those in South Korea and Japan,” the same source added.
Major media groups in South Korea have reported positive effects brought about by the temporary exemption on graphite-related anode products, believing that it is quite difficult for South Korea to find alternative graphite sources for battery production in the near term. It would take years to realize the shift of feedstock sources, according to market participants.
Building an ex-China supply chain
But many participants believe that the overall trend of pushing China out of the global EV supply chain by restricting the use of China-sourced materials would remain unchanged. The two-year delay is only providing a period for ex-China suppliers to prepare for that, according to sources.
“The construction of ex-China supply chain [maintains] its importance amid geopolitical tensions. But there are still many uncertainties regarding how the new rules released by the US Treasury would affect the graphite market dynamics,” a second anode producer in China said.
“The low graphite prices have damped the investment appetite for graphite suppliers outside China while geopolitical tensions would make Chinese anode producers more cautious in outbound investment.”
Fastmarkets’ assessment for graphite flake 94% C, -100 mesh, fob China stood at $460-490 per tonne on Thursday April 25, falling for three consecutive weeks due to weak downstream demand from anode and refractories sectors.
Fastmarkets did not publish an assessment for graphite flake fob China on May 2 due to China’s public holiday from May 1-5, in accordance with the pricing methodology.
Want to find out more about our critical minerals price data, forecasts and market insights? Head to our critical minerals hub today.
