China is seeking to place export restrictions on some graphite products following an earlier decision to curb outbound shipments of gallium and magnesium. China’s move has triggered growing concerns over the possible adverse impact on the global supply chain of graphite, a key material used in the production of batteries for electric vehicles.
China claims the recent move does not target a specific country. Instead, the country's commerce ministry said the decision was “conducive to ensuring the security and stability of the global supply chain and industrial chain while better safeguarding national security and interests.” Yet it appears China’s move came as a counteroffensive against the U.S. decision on Oct. 18 to take additional measures to curb semiconductor exports to China.
In August, China was widely criticized for restricting exports of gallium and germanium, key materials used in the production of state-of-the-art chips. By including graphite into the list of restricted exports, China has revealed its intention to “weaponize” materials. This poses a grave challenge for Korea and its enterprises which rely heavily on China for the supply of essential industrial minerals. The United States has been seeking to align its allies, including South Korea and Japan, in a bid to nurture EVs and batteries at its discretion, prompting China to take steps to counter such attempt.
What matters is the possible damage China’s recent move will have on Korean companies, such as LG Energy Solution, SK on and Samsung SDI. China has been dominating the markets of graphite and anodes. China accounts for 70 percent of the global graphite market. China is also home to the world’s four major firms that produce anodes, which are negatively-charged portions of batteries.
Korea’s three major battery makers rely on China to import more than half of their anode needs. POSCO Future M, which is the world’s fifth largest anode maker, imports almost all of its graphite from China.
Worse still, it is highly likely China will attempt to expand the export restrictions to other key materials amid an intensifying technology hegemony competition with the U.S. According to the European Union (EU), China accounts for the lion’s share of 33 key materials out of atotal 51, including 15 rare earth materials. In terms of volume, China accounts for up to two thirds of the entire materials.
Battery companies maintain that they will face no serious setbacks for the time being, since they have enough stockpiles. Yet they will brace for grave challenges from a mid-and-long term perspective unless they take steps to prepare for a possible shortage of key materials.
The diversification of supply channels for key resources cannot be resolved in the short term. Given this, the government and businesses should combine their efforts to persuade China more proactively. On the other hand, they also need to double down on diversifying supply channels to other areas such as Southeast Asia, Africa and Latin America that are replete with natural resources.
The government has vowed to lower the dependence on China to 50 percent for the procurement of 30 major key materials by 2030, but has made little progress thus far. It is high time for the government to focus on economic diplomacy to secure the critical materials to cope with the growing global supply uncertainties.
The government should more actively cooperate with diverse international organizations, such as the Minerals Security Partnership, initiated by the U.S. and established in June, 2022, and another body led by Australia.
Seoul and Beijing are competing fiercely in the global battery market. China’s CATL is the world’s No. 1 battery maker, followed by LG Energy Solution. Nine out of the 10 major battery firms are either from Korea or China. Apparently, China will not stop its attempts to “weaponize” materials with the recent graphite export curb. The government and enterprises should take steps to more proactively secure key materials and resources.