On Friday, China announced that it would impose export licence requirements on certain graphite products. Under the new restrictions, which will start from 1^st December, exporters will need to apply for a licence. The rules target two types of graphite, including high-purity, high-hardness and high-intensity synthetic graphite material, and natural flake graphite and its products.

The countries most dependent on Chinese flake graphite exports are South Korea, Japan, and India – while those most reliant on spherical exports are South Korea, Japan, and the USA. Project Blue expects companies in Korea/Japan countries engaged in the coating of spherical graphite to be the most affected.

The export control follows hot on the heels of similar restrictions placed on certain forms of gallium and germanium in July. These critical materials markets were thrust into the international spotlight when China’s Ministry of Commerce (MOFCOM) and the General Administration of Customs (GAC) posted notices suggesting that starting on August 1st, eight items related to gallium, and six items related to germanium could not be exported without state approval to “safeguard national security interests”.

There are similarities and differences between the graphite restrictions vs the gallium/germanium situation. It is the same in terms of a requirement for permits and the rhetoric/justification relating to “national security”.

But with the gallium and germanium move, China’s action had the feeling of a direct retaliation. The USA and its allies had been looking to limit the export of semiconductor technology to China, and China responded by threatening to throttle the semiconductor supply chain further upstream at the raw material level. Importantly, these actions stayed within the boundaries of the semiconductor supply chain: China didn’t respond with a ban on cobalt or tungsten exports – they kept it relevant to semiconductors.

This time it’s different. There has been no notable graphite or lithium-ion/steel-related schism with many suggesting the export restrictions are a response to potential EU tariffs on Chinese-made EVs and US government curbs on Chinese companies' access to semiconductors.

What does the gallium/germanium ban tell us about what’s in store for graphite?

Gallium/germanium market developments may help us predict what the coming months have in store for graphite. Below are four possibilities to monitor.

There may be lots of activity followed by none: According to government statistics, China's exports of gallium products fell to zero in August following the country's introduction of export controls. This may happen to graphite in December. Before the ban, however, there was a flurry of activity in the four weeks between the announcement and the ban. There are six weeks until the graphite restrictions come into force, which leaves a decent window of opportunity for commercial activity.

Export licences will follow soon enough: Within about eight weeks of the gallium/germanium announcement, some companies were granted export licenses including AXT’s Beijing subsidiary (Beijing Tongmei Xtal Technology). This suggests that graphite licences may be in place for some by the end of 2023.

Prices may be volatile: Following the gallium/germanium announcements, gallium prices in China increased in July (when the news was announced) but fell back again in August (when the ban came into force) according to Asian Metal. Germanium prices stayed flat. Gallium prices in Europe however, stayed elevated – based on Fastmarkets data. As of October, gallium prices hit their highest level since February according to SMM. These trends suggest that graphite prices may be set to rise over the coming weeks, that Western and Chinese prices may diverge, and that week-to-week volatility may be expected.

More may be in store: Of course, the biggest question is whether more markets will be affected in this way. Aside from the letter G (watch out Gadolinium), there is no clear trend to suggest which supply chain China could target next, if at all.

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