China’s decision to curb exports on graphite, a crucial mineral in the production of batteries for electric vehicles (EVs), has sent shares of North American graphite companies soaring.
The Ministry of Commerce and the General Administration of Customs revealed that export permits would be required for synthetic graphite materials, including high-purity, high-strength, and high-density varieties, as well as for natural flake graphite, starting in December.
The move is part of an escalating trade war between China and the US, which recently imposed further restrictions on semiconductor sales to Chinese companies.
China's restrictions on natural graphite supply have raised concerns about the availability of critical battery anode material used in lithium-ion batteries for EVs. China is the world's dominant producer and processor of graphite, with approximately 67% of global graphite production. Graphite is a primary component of lithium-ion batteries used in EVs and grid energy storage.
The US lacks domestic natural graphite production and processing for EV batteries.
“The announcement of export curbs by China highlights the importance of standing up a battery grade graphite anode industry in the United States to support the energy transition,” said Terence Cryan, executive chairman at Westwater Resources Inc (NYSE-A:WWR), a US-based developer of battery-grade natural graphite products.
“Since nearly 100 percent of global graphite anode material is coming from China this year, diversity of supply is in the country’s best interest,” Cryan said in a statement.
Westwater shares were up nearly 24% on Monday and have gained nearly 55% during the past week. The company is focusing on the construction of the Kellyton graphite processing plant in east-central Alabama, alongside the Coosa graphite deposit, a promising natural flake graphite resource across 41,900 acres in Coosa County, Alabama.
Many automakers are striving to secure supplies of graphite from sources outside of China as demand for EV batteries continues to surge. Global EV sales exceeded 10 million units in 2022, up 55% from the previous year, with further growth anticipated in 2023.
While the rules are not a complete ban, they will likely lead to rising graphite prices due to supply and demand imbalances.
That puts graphite producers like Nextsource Materials Inc. (TSX:NEXT, OTCQB:NSRCF) in a good position. NextSource has just shipped its first batch of SuperFlake graphite from Madagascar's Molo mine to its Battery Anode Facility for processing into spheronized, purified graphite. This graphite material will then be further refined into coated graphite as part of comprehensive verification tests by electric vehicle (EV) supply chains in South Korea and Japan.
NextSource is aiming to be a vertically integrated global supplier of graphite anode material, planning to establish multiple commercial-scale Battery Anode Facilities in strategic locations.
“NextSource is well positioned to play a critical role in the global, sustainable lithium-ion battery supply chain that is expected to see exponential growth over the next few decades,” CEO Craig Scherba told investors in a statement Monday.
NextSource shares rose nearly 20% since China’s export curbs.
As China dominates the production of critical battery materials, it adds complexity to the transition toward EVs worldwide. US officials are assessing the measure's potential impacts, and lawmakers are emphasizing the need for supply chain resilience to counter such coercive measures.
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