The Chinese Ministry of Commerce and the General Administration of Customs have issued an announcement regarding the optimization and adjustment of temporary export control measures for graphite materials. This announcement imposes export controls on specific items, including high-purity (purity > 99.9%), high-strength (bending strength > 30 MPa), and high-density (density > 1.73 g/cm³) synthetic graphite materials, flake natural graphite, spherical graphite, and expanded graphite. These items have officially been added to the list of dual-use items subject to export control and may not be exported without the necessary permits. Exporters are required to obtain the relevant export licenses in accordance with the provided regulations. This policy will be formally implemented from December 1, 2023.

At the same time, the European Union is launching an anti-subsidy investigation against China's new energy vehicles, and the United States is tightening restrictions on the Chinese semiconductor industry. China, a significant player in the global graphite industry, has imposed export controls on graphite, a critical raw material for many strategic emerging industries and a vital component of new energy batteries. This move has attracted the attention of some foreign media, and some analysts perceive it as a retaliatory measure by China against Europe and the United States. This policy specifically targets high-purity, high-strength, and high-density synthetic graphite materials and their products, and it is expected to have a significant impact on the lithium-ion battery anode market.

The Chinese government announced the implementation of export controls on graphite-related items starting from December 1st. On the same day, the South Korean government held a meeting to assess the supply and demand situation of graphite and discuss countermeasures with major battery manufacturers. According to data from the South Korean Ministry of Industry, Trade and Resources, the total value of artificial and natural graphite imports for battery anodes in South Korea last year was $241 million, with 93.7% of it originating from China.

Reports suggest that on the 20th, the South Korean Ministry of Industry, Trade, and Resources held a meeting called the "Industrial Supply Chain Inspection Meeting" at the Federation of Korean Industries to examine the impact of China's export controls on graphite-related items on the domestic supply chain. Industry insiders in the battery sector noted that the Chinese government has merely included graphite-related items on the list of items that require permits for export, rather than an outright ban on exports. Therefore, they believe it's crucial to closely monitor the situation's development. In response, the head of the Trade Negotiations Department of the South Korean Ministry of Industry, Trade, and Resources, Chang Andeok, stated during the meeting, "To avoid any adverse effects on the production of the domestic core industry, the secondary battery industry, resulting from this measure by China, the government will continue to maintain close communication with the Chinese government and the domestic industry."

01. What is "Export Control"?

Export control is the legal and regulatory framework governing the export of goods, established by a country for political, economic, military, and foreign policy reasons. It involves control over the destination country and the items being exported. Key measures include (1) implementing an export permit system with quantity restrictions for raw materials, semi-finished products, and goods in short supply domestically; (2) stringent control through special export permits for strategic materials, advanced technology, and high-end products; (3) automatic restrictions on certain types of goods as part of international obligations; and (4) national control over aspects like the quality and price of exported goods to enhance their competitiveness.

02. Interpretation:

On October 20th, the Ministry of Commerce and the General Administration of Customs jointly issued an announcement regarding the export control of graphite items. Through discussions with several domestic natural graphite enterprises, it has been observed that opinions within the domestic natural graphite industry regarding this policy vary. Faced with the release of export control policies, some spherical graphite enterprises express certain concerns about the market.

Here are the perspectives of some natural graphite enterprises:
 

A Enterprise: A representative from this company mentioned that their foreign customers also have concerns. To prevent stricter controls in the future, they hope to complete orders scheduled for Japan and South Korea by the end of 2023.
 

B Enterprise: The company views this policy rather calmly, emphasizing that they have all the necessary qualifications for exporting spherical graphite. As long as they promptly process the export permits and plan their export orders in advance while coordinating with foreign clients, they believe there won't be significant issues with delivery schedules.
 

C Enterprise: This company believes that this policy is aimed at tightening the export of natural graphite, which might negatively impact the natural graphite export market. The situation is expected to become clearer by mid to late November.
 

The introduction of this policy has caused some concerns in the domestic natural graphite market. Export control involves obtaining the necessary documents, and the process takes around two weeks. This might lead to delays in foreign orders, making it short-term bearish news for the natural graphite market. However, considering that China is a major producer and exporter of graphite globally, with graphite resources being of strategic importance, the policy can be seen as contributing to the long-term security and stability of the global supply chain and industry.

Optimization and Adjustment of Temporary Export Control Measures for Graphite Items (Formally Implemented from December 1, 2023)

Graphite-related products subject to temporary export control measures (Implemented on September 1, 2006, repealed on December 1, 2023).

Source of Information: Ministry of Commerce, State Commission of Science, Technology, and Industry for National Defense, General Administration of Customs

In 2022, the world's major graphite-producing countries, apart from China, include Mozambique, Madagascar, Brazil, Canada, and South Korea, while developed countries like the United States, Germany, Japan, and France mainly rely on imports for their graphite supply. Currently, most graphite-producing countries, excluding China, primarily deal in primary processing products. China's primary processing enterprises have a larger production scale and more advanced technology, leading the world in the preparation of expanded graphite, spheroidized graphite, and other related technologies. In terms of deep processing, China is also a major global producer of anode materials, diamond, flexible graphite, microfine graphite, graphene, and more. The variety of deep processing products is diverse, with anode materials accounting for over 96% of the global production.

Graphite's application in the battery sector is continuously expanding, and a new concept of "carbon reduction through carbon" has been proposed for the development of natural graphite lithium-ion battery anode materials. Compared to synthetic graphite anodes, natural graphite anodes have lower carbon emissions since they don't require the graphitization process. They are highly sought after by overseas battery manufacturers. While the overseas anode industry is still in its infancy, more than 70% of the newly added production capacity is focused on natural anodes, and currently, nearly 100% of the supply of the raw material, spheroidized graphite, comes from Chinese enterprises and the market.

Full Policy Text:

The Ministry of Commerce and the General Administration of Customs have issued an "Announcement on the Optimization and Adjustment of Temporary Export Control Measures for Graphite Items." According to relevant regulations and with the approval of the State Council, it has been decided to optimize and adjust the scope of items listed in the Announcement No. 50 of 2006 jointly issued by the Ministry of Commerce, the State Commission of Science, Technology, and Industry for National Defense, and the General Administration of Customs ("Decision on the Temporary Export Control of Graphite-Related Products"). This adjustment includes the implementation of export controls on certain items for the purpose of safeguarding national security and interests.

Items meeting the following criteria may not be exported without a permit:

(1) High-purity (purity >99.9%), high-strength (bending strength >30 MPa), high-density (density >1.73 g/cm³) synthetic graphite materials and their products (refer to customs commodity numbers: 3801100030, 3801909010, 6815190020).

(2) Natural flake graphite and its products (including spheroidized graphite, expanded graphite, etc.) (refer to customs commodity numbers: 2504101000, 2504109100, 3801901000, 3801909010, 3824999940, 6815190020).

In addition to the above items, the Announcement No. 50 of 2006 jointly issued by the Ministry of Commerce, the State Commission of Science, Technology, and Industry for National Defense, and the General Administration of Customs ("Decision on the Temporary Export Control of Graphite-Related Products") cancels the temporary export controls on other listed items.

Export operators must, in accordance with the relevant regulations, apply for export permits through the provincial commerce authorities, complete the Dual-Use Item and Technology Export Application Form, and submit the following documents:

(1) Original export contracts or agreements or consistent photocopies or scans thereof.

(2) Technical specifications for the items intended for export or test reports.

(3) Proof of the ultimate user and end-use.

(4) Information about the importer and the ultimate user.

(5) Identification of the legal representative, key management personnel, and the responsible person.

The Ministry of Commerce shall review the export permit application from the date of receipt and, if necessary, conduct the review jointly with relevant departments, and make a decision to grant or deny the permit within the statutory time limit. For items listed in this announcement that have a significant impact on national security, the Ministry of Commerce shall report to the State Council for approval.

Upon approval, the Ministry of Commerce shall issue a Dual-Use Item and Technology Export Permit (hereinafter referred to as "Export Permit").

The procedures for applying for and issuing Export Permits, special case handling, document retention periods, and other matters shall be carried out in accordance with the relevant provisions of the Measures for the Administration of Dual-Use Item and Technology Import and Export Licenses (Decree No. 29 of 2005 jointly issued by the Ministry of Commerce and the General Administration of Customs).

Export operators must present the Export Permit to the Customs, go through customs procedures as required by the Customs Law of the People's Republic of China, and accept customs supervision. Customs shall handle the customs clearance procedures based on the Export Permit issued by the Ministry of Commerce.

If export operators export items without permits, exceed the scope of permits, or engage in other illegal activities, the Ministry of Commerce or other relevant departments shall impose administrative penalties in accordance with relevant laws and regulations. In cases constituting a crime, criminal liability shall be pursued in accordance with the law.

This announcement shall be officially implemented from December 1, 2023. Simultaneously, Announcement No. 50 of 2006 jointly issued by the Ministry of Commerce, the State Commission of Science, Technology, and Industry for National Defense, and the General Administration of Customs ("Decision on the Temporary Export Control of Graphite-Related Products") shall be repealed.

Ministry of Commerce and General Administration of Customs

October 20, 2023

(Source: Ministry of Commerce website, Xinlu Information, Baichuan Information, etc.)