On Friday 20 October 20, 2023, China announced export controls on both natural and synthetic graphite, citing national security concerns.
It’s the latest in a long series of tit-for-tat announcements from various countries about various commodities, that stretches back at least to the Trump days.
There’s now no major trading bloc or advanced nation which doesn’t now have its own list of “strategic minerals”, although what such lists really mean in practice is open to question.
One thing we know is that to date a major focus has been on the metals required for electric vehicles.
Lithium is a big deal in this area of course, but what’s less widely realised is that graphite is the largest single constituent of lithium-ion batteries.
For any country that’s electrifying its vehicle fleet, graphite and lithium are of vital significance. So much so, that even the new cultural mores can be cast aside in pursuit of their acquisition.
To understand the difference between what America says in regard to battery metals, and what it actually wants and does, look no further than Thacker Pass, a site of Native American historical and special environmental interest, that also hosts a large lithium deposit.
Guess which special interest group won the battle about its development?
Rare plants and historical memories were swept aside in the name of what the losing side called “green colonialism”.
In the end, strategic interests will always trump local ones, which is why China’s move on graphite has whetted the appetites of a mining investment community that has been plenty starved of good news lately.
Will China’s export controls, which are due to take effect in December, drive up the price of graphite?
It certainly seems likely.
Access to graphite feedstock for anode producers, including in major Chinese market South Korea, is likely to be affected.
And, as those who usually source supply from China scramble to find alternatives, competition for existing supply will get squeezed.
Or to put it another way, it will become a sellers’ market.
Which companies will benefit from this?
The UK stock exchanges don’t boast a plethora of graphite companies, but there are a couple of note.
The first is Tirupati, which has production and value-add operations all the way up the supply chain. That in itself makes it something of a standout, since the majority of the graphite miners listed on the world’s stock exchanges are explorers or developers.
Tirupati has the cashflow up and running, and is set to benefit from any price uplift from the get-go.
“Our target is for Tirupati to become the leading producer and supplier of natural graphite, including for use in lithium-ion batteries and the energy transition sectors outside of China,” says Tirupati’s chief executive Shishir Poddar.
That’s not a bad target to have, given that China currently controls more than 65% of global graphite production, and 100% of spherical graphite refining for lithium-ion batteries.
Tirupati is more likely to pull it off than most other companies, given its deep existing experience of operating up the value curve. Its assets in Madagascar are also well outside of the Chinese sphere of influence, at least for now.
It might be a tough battle for one miner to wage alone though.
Broker SP Angel reckons that the Chinese government probably subsidises the national graphite industry in order to allow Chinese electric vehicle manufacturers a competitive advantage. China is already very big in EVs, to an extent that is barely recognised in the West - SP Angel thinks that “weaponisation” of graphite might be designed to allow national champions “to get ahead.”
However that may be, it doesn’t alter the new dynamic that outside of China, graphite could well become more scarce. Even if in the immediate term Tirupati doesn’t manage to break into lithium-ion batteries, it will still benefit from that upward pressure on prices.
And other UK-listed companies like Blencowe, with its licenced development asset in Uganda, and Sovereign Metals, with its graphite and rutile development asset in Malawi. These companies are earlier stage, but both are staffed by seasoned mining professionals who know how to move projects along and either sell them or get them into production.
Rio Tinto and Sprott, big names in the industry, are heavily invested in Sovereign Metals, whilst Blencowe also has an experienced investor base to call on.
So sizeable bets are being placed on graphite, although whether they will pay off remains an open question. Share prices in graphite companies did jump on the Chinese announcement, but overall they’ve been fairly subdued over the past year or two, as wider economic woes continue to dominate headlines, the mining sector at large remains in the doldrums, and the true demand picture from electric vehicles remains up for debate.
A restricted graphite supply from China can’t hurt the price, and “green colonialism” might help things along, but in the end it’s the quality of the asset itself that will make the difference.