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Navigating the Maze: Global Electric Vehicle Battery Supply Chain Grapples with China's Graphite Restrictions

Intricacies of Global EV Battery Supply Chain Unravel as China Implements Graphite Export Restrictions

SHANGHAI, Oct 27 (Reuters) — The recent announcement by Beijing to restrict graphite exports is sending ripples through the global electric vehicle (EV) supply chain, particularly affecting foreign manufacturers of EV battery components that have not transitioned to using synthetic materials as extensively as their Chinese counterparts, according to industry insiders and experts.

While China claims that its latest limits on critical mineral exports are not aimed at a specific sector, uncertainty permeates the global EV supply chain since the announcement last Friday. Chinese manufacturers, even those with international operations, express limited concern as most of their EV batteries already incorporate a grade of synthetic material unaffected by the new restrictions.

China's dominant position in the global EV battery supply chain, encompassing graphite production as the largest component, is underscored by the fact that Chinese companies process both natural graphite sourced domestically and overseas, as well as synthetic forms. Top buyers of both natural and synthetic Chinese graphite, including Japan, South Korea, and the United States, now face potential disruptions as analysts caution that the new measures could impede the flow of graphite crucial for producing anodes—the negative electrodes of EV batteries.

Commencing on December 1, China's new rules mandate export permits for high-end synthetic graphite and key forms of natural graphite. However, executives at companies utilizing graphite in China and globally are still seeking further clarity on the implications of these measures.

An employee from Qingdao Haida, a major Chinese graphite processor, revealed that the company's products, such as spherical graphite used in lithium-ion battery anodes, fall under the new regulations. While the company has not received instructions on applying for export permits, the impending process is expected to become more cumbersome. Haida did not immediately respond to requests for comment.

China's recent moves to require export permits for gallium and germanium products have already disrupted international shipments of chipmaking metals. Despite inquiries, the commerce ministry has not provided additional details. A source familiar with the Chinese government's thinking emphasized that graphite also finds use in military equipment, adding an additional layer of complexity to the situation.

Navigating the Graphite Landscape: Chinese Firms Downplay Overseas Impact of Export Restrictions

As Beijing tightens its grip on graphite exports, Chinese companies with burgeoning overseas operations assert that the recent restrictions will have minimal repercussions on their ventures abroad. The key lies in their strategic use of synthetic graphite, specifically steering clear of the high-grade variety encompassed by the new measures, characterized by a density of 1.73 grams per cubic centimeter and above.

Synthetic graphite, a specialty of Chinese production, boasts the advantage of facilitating faster battery charge times. Chinese companies, at the forefront of this technology, emphasize their reliance on synthetic graphite with lower density, sidestepping the stringent regulations. While global manufacturers are gradually embracing synthetic graphite, the shift has been sluggish, owing in part to the environmental concerns surrounding the more polluting production process of petroleum-based synthetic graphite.

Volkswagen-backed Gotion High Tech and BTR New Material Technology, a global anode production giant, both affirmed that the new rules would exert minimal impact on their operations. Gotion High Tech, with plans for a U.S. plant, highlighted that the density of graphite used in its batteries falls below the restricted threshold. BTR, the world's largest anode producer, reassured that its products align with the permissible density range for EV batteries.

Ningbo Shanshan, another prominent Chinese anode manufacturer, echoed a similar sentiment, stating that the restrictions would not impede its exports of artificial graphite products. Despite plans for expansion in Indonesia and Finland, both BTR and Shanshan have yet to respond to Reuters' requests for additional comments.

On the global stage, companies such as Hitachi Chemical, a part of Japan's Resonac Holdings Corp, POSCO Future M from South Korea, and Mitsubishi Chemical, operating natural graphite plants in China, may face challenges due to the slower transition from natural to synthetic graphite. These companies, while downplaying immediate impacts, are closely monitoring the situation. Tesla supplier Syrah Resources, based in Australia and mining graphite in Mozambique, anticipates increased demand for natural graphite from buyers outside of China as the stricter controls come into effect. As the graphite landscape undergoes shifts, the global supply chain braces for adjustments in the pursuit of sustainable and resilient solutions.

Epsilon Advanced Materials (EAM), based in India, announced this week its ambitious plan to establish a $650 million plant in North Carolina, USA, dedicated to the production of battery materials and components, including synthetic graphite. The move signifies a strategic response to the evolving dynamics in the global graphite market, particularly the limitations imposed on graphite exports from China.

CEO Sunit Kapur emphasized the significance of this initiative, stating, "We believe that limiting the amount of graphite exported from China — and likely the price increase for graphite that it will create — exacerbates the challenges and exemplifies the need to develop synthetic graphite for the U.S. locally." This perspective aligns with a growing trend among industry players to foster local production capabilities, enhancing resilience and mitigating potential disruptions in the supply chain.

EAM is actively engaging with suppliers to secure raw materials, including natural graphite, a critical component in battery production. As discussions unfold, the company positions itself to contribute to the broader effort of reducing dependence on a single source and fostering a more sustainable and diverse supply network.

The strategic decision by EAM reflects the broader global shift toward decentralizing production and diversifying supply chains in the wake of geopolitical and economic uncertainties. With aspirations to play a pivotal role in the U.S. battery materials market, EAM's foray into North Carolina signifies a forward-looking approach to address challenges and ensure the stability of the burgeoning battery industry.

Reported by Zhang Yan, Siyi Liu, and Brenda Goh, with additional contributions from Satoshi Sugiyama in Tokyo, Heekyong Yang in Seoul, Paul Lienert in Detroit, and Jing Xu in Beijing, this development underscores the industry's commitment to adaptability and resilience. As EAM ventures into new territory, the evolving landscape of battery materials production continues to shape the trajectory of the global energy transition.

In conclusion, Epsilon Advanced Materials' (EAM) strategic decision to establish a $650 million plant in North Carolina marks a pivotal step in the evolution of the global battery materials market. The move, driven by the need to address challenges arising from limitations on graphite exports from China, underscores EAM's commitment to fostering resilience and localizing production in the U.S. The emphasis on developing synthetic graphite domestically aligns with broader industry trends seeking to diversify supply chains and reduce dependence on a single source.

EAM's proactive engagement with suppliers for raw materials, including natural graphite, positions the company as a key player in contributing to a more sustainable and robust supply network. The global shift toward decentralizing production gains momentum as companies recognize the importance of adapting to geopolitical and economic uncertainties.

As reported by a diverse team of journalists, this development reflects a collaborative effort across international boundaries, with inputs from Tokyo, Seoul, Detroit, and Beijing. The industry's dedication to adaptability and resilience shines through, emphasizing a forward-looking approach to navigating challenges in the dynamic landscape of battery materials production.

In this evolving narrative, EAM's venture into North Carolina not only signifies a significant milestone for the company but also mirrors the broader transformation within the energy sector. As the world moves towards a more sustainable future, such strategic initiatives play a crucial role in shaping the trajectory of the global energy transition.