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China’s decision to install permit approvals for domestic graphite exporters has boosted Australian-listed graphite miners.
The new regulations come into force in December of 2023, widely viewed as a response to US trade relations.
China’s Ministry of Commerce and the General Administration of Customs confirmed the regulation shift, citing national security.
The new rules are widely understood to contain restrictions on two types of graphite – a key EV battery metal.
Synthetic graphite and natural flake
The first type of graphite is that manufactured synthetically.
Synthetic graphite has now become the most common type on world markets, with some sources reporting a 75/25 split.
Market forces shaping graphite pricing, already opaque compared to other metals, haven’t failed to take notice.
The second type of graphite is natural flake graphite – that latter term referring to all mineralised graphite mined from the ground.
Before China announced these graphite export restrictions, the US had banned China from receiving certain types of Nvidia microchips.
ASX flow-on effects
Australian graphite mining stocks are up as investors theorise looming supply constraints will drive up graphite metal prices.
Take a look at Triton Minerals (ASX:TON), based in Mozambique.
The microcap graphite explorer has been a beneficiary of China’s surprise move.
- As of Friday 27 October 2:00 pm AEDT, Triton’s one-week performance is up 28.57 per cent
- This is versus its year-to-date performance down in the red at -25 per cent
- One-month returns are higher at 35 per cent
- One-year returns of 12.5 per cent, and the stock – a microcap – is even outrunning the materials sector on a one-year basis by 3.42 per cent
Fostering enthusiasm is surely S&P Global forecasts Africa could one day collectively become the world’s largest graphite exporter.
But we’re a while away from that, yet.
Graphite changing prices
Synthetic graphite production has been rapidly growing in China in recent years, and so has demand for it.
Synthetic graphite has actually led to a wholemeal fall in graphite prices, across both synthetic and natural categories.
This was part of the reason Syrah Resources (SYR) shuttered its Balama project in Mozambique earlier this year.
In turn, Syrah became the second most shorted stock on the ASX as of Week 43, 2023.
But why do the decisions of the Chinese government impact international graphite prices – and the stocks of those who mine it – in the first place?
Chinese market dominance
Here’s the kicker: China is the world’s top graphite exporter, producer, and refiner. The vast majority of graphite refining occurs there.
If you’re noticing a theme of Australian graphite miners being located in Mozambique, that’s not a coincidence.
The African nation provides seven per cent of world supply – the second largest after China’s 76 per cent.
This is why its graphite export curbs could be a problem for the rest of the world – especially given that large volumes of graphite are used in a singular lithium-ion EV battery.
Having that level of control affords a unique geopolitical tool.
Leveraging market power
China exported nearly 40,000 tonnes of spherical graphite into world markets between January and September of 2023, according to Chinese customs trade data.
Year on year, that’s down 12 per cent.
Spherical graphite is a renownedly hard-to-produce refined fine version of graphite metal which is the type of graphite most desired by electric vehicle battery makers.
The only place you can produce spherical graphite at scale? Take a guess.
That’s right, it’s China.
Latest punch in a trade war
Consider the fact China has already curbed exports of two other tech metals this year – gallium and germanium.
Microchips require both. Those restrictions came after the Netherlands agreed to side with existing US trade restrictions on China.
The tit-for-tat trade war is obvious, and, appears not to be stopping.
In the background, Australia’s relationship with China is improving – Asia’s second-largest nation after India may once more begin buying our wine.
So why graphite?
Graphite is often considered the forgotten battery material (meaning lithium receives all the attention) and true graphite believers continue to await a graphite boom.
Consider these investors in solidarity with outstandingly patient uranium bulls.
That graphite boom has unfortunately long proven to remain elusive.
But if Chinese export curbs do seriously dent global supply, then it’s beyond possible that 2024 could be the year graphite loyalists have been preparing for.
To the contrary, however, one can’t help but consider China’s current economic troubles might make exporters operating there, let alone its government, all the more tempted to keep a high-value metal flowing to foreign buyers.
A cynical reader might even go as far as to reflect that publicising looming graphite export bans would be a good way to manufacture higher prices.
But for all intents and purposes, you’d be stuck with the risk of being called a conspiracy theorist.
Still, though. You can’t deny it’s handy for China – who’ve shot themselves in the foot by proliferating synthetic graphite capacity and cheapening the metal.
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