[Complete Battery Mastery](22) "No Immediate Alternatives Outside China"...Emergency Alert on Graphite, Can Self-Reliance Be Achieved?

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Hyundai Motor Group submitted a statement to the U.S. government on the 18th of last month (local time), expressing that "applying the Foreign Entity of Concern (FEOC) criteria immediately to certain critical minerals is unrealistic." LG Energy Solution, SK On, Samsung SDI, and the Korea Battery Industry Association also submitted similar statements.

The "certain mineral" Hyundai referred to is graphite. Hyundai pointed out, "In 2022, China refined and produced 100% of the world's spherical graphite and 69% of synthetic graphite," adding, "It is highly unlikely that other countries can replace China in the short term." They proposed temporarily introducing a list of critical minerals that can be used for manufacturing batteries and battery components regardless of origin, and requested that graphite be included on this list.

To qualify for electric vehicle subsidies under the U.S. Inflation Reduction Act (IRA), battery components must not be sourced from FEOC countries starting this year, and critical minerals used in batteries must not be sourced from FEOC countries starting in 2025. The U.S. government effectively designated all companies in China as FEOC on December 1 last year. If critical minerals such as graphite are not procured from countries other than China, subsidies will not be available in the U.S. from next year.

Hyundai and the domestic battery industry specifically singled out graphite because of the high dependence on China. According to the Korea International Trade Association, South Korea's import dependence on natural graphite from China was 97.7%, and on synthetic graphite was 94.3% from January to September 2023.

Graphite

Graphite is a mineral widely used as an anode material in electric vehicle batteries due to its high energy capacity and excellent stability. By cost, it accounts for about 15% of lithium-ion batteries, but by content, it is the largest single mineral. Graphite makes up 20-30% of lithium-ion batteries.

An average electric vehicle contains 50-100 kg of graphite, which is about twice the amount of lithium. According to the International Energy Agency (IEA), if the total demand for minerals needed for energy storage is 100, graphite accounts for a staggering 53.3%.

Alternative anode materials such as silicon and lithium metal are being developed but are only used in very limited amounts or have not yet been commercialized. Even silicon is used only about 5-10% in anodes, with the rest still being graphite. Graphite is likely to remain an important critical mineral in lithium-ion batteries for a considerable time.

China began controlling graphite exports in December 2023. Fortunately, exports to South Korea are still permitted. This is analyzed to be due to increased inventory in China caused by reduced electric vehicle demand. However, if circumstances change, China can tighten its grip on Korean companies at any time. Securing a stable supply chain for graphite is a key challenge for South Korea's lithium-ion battery industry.

Natural Graphite vs Synthetic Graphite: Which is Better?

Graphite is a carbon-based material. Graphite and diamond are allotropes of carbon, meaning they are composed of the same element but have different properties. Graphite was historically used as pencil lead. The English name "graphite" derives from the Greek word "graphein," meaning "to write." Because graphite does not burn, it is also widely used industrially as a refractory material in steel production.

Graphite was once a common material but has become a "critical mineral" globally due to its use as an anode material in lithium-ion batteries.

Anode materials are closely related to the charging time and lifespan of lithium-ion batteries. Charging involves storing lithium ions in the anode. Repeated charging and discharging cause phenomena such as swelling and dendrites (branch-like lithium crystals), which eventually render the battery unusable.

Graphite has a plate-like structure where six carbon atoms are continuously bonded in a hexagonal shape. These plates are stacked, allowing lithium ions to be stably stored and released between them. This is why graphite is widely used as an anode material in lithium-ion batteries.

Graphite is broadly classified into natural graphite and synthetic graphite. Natural graphite is first mined in its natural state and then purified through beneficiation to remove impurities. It undergoes washing, dehydration, drying, and de-ironing processes to produce spherical graphite. High-purity graphite is made by surface coating and high-temperature calcination of spherical graphite.

Natural graphite and artificial graphite anode material manufacturing process. Image source=Korea Development Bank

Synthetic graphite uses coal tar, a byproduct of coal or petroleum, as the main raw material. Coal tar is coked (heated in the absence of oxygen to remove volatile substances) to produce needle coke, a carbon-based material. After grinding the needle coke and heat-treating it at about 3000 degrees Celsius, synthetic graphite is produced. It then undergoes surface coating and other processes to become synthetic graphite anode material.

Natural graphite has the advantage of being inexpensive due to simpler processing and has a high degree of graphitization, resulting in high energy capacity. However, it experiences swelling more frequently than synthetic graphite, leading to a shorter lifespan. Synthetic graphite has a smooth, rounded surface that allows lithium ions to move through various pathways. It has strengths in output, lifespan, and stability but is more expensive due to more complex and high-temperature processing.

Natural and synthetic graphite complement each other, so the industry uses a suitable mix depending on the characteristics and applications of electric vehicles.

Overall, the share of synthetic graphite is increasing. According to market research firm ICC Consulting, synthetic graphite accounted for 70% of China's anode material production in 2018, rising to 81% in 2022. Natural graphite production decreased from 26% to 18% during the same period.

The Graphite Industry Dominated by China

Globally, graphite reserves are estimated at about 330 million tons. Turkey boasts the largest reserves, accounting for 27% of the total. Brazil ranks second with 22%, and China is third with 16%.

However, in terms of production, China held an overwhelming 65% share in 2022. Mozambique (13%), Madagascar (8%), and Brazil (7%) follow, showing a significant gap.

Image courtesy of Korea Development Bank

This is the result of the Chinese government's expansion of domestic graphite production alongside the promotion of new energy vehicles such as electric cars. China not only produces graphite domestically but also imports graphite ore from African countries like Mozambique and Madagascar, processes it into spherical graphite, and exports it worldwide. In 2022, China supplied 91% of the world's graphite based on refining and smelting standards.

Korean battery companies have long used inexpensive Chinese graphite. Dependence on China for graphite applies to both natural and synthetic graphite. From January to September 2023, import dependence on China was 97.7% for natural graphite and 94.3% for synthetic graphite.

These figures have not decreased but rather increased. In 2020, import dependence on China for natural graphite was 90.7%, rising by 7.0 percentage points over three years. Synthetic graphite dependence also increased by 10.2 percentage points during the same period. Without importing graphite from China, the domestic battery industry would be paralyzed.

By company, as of 2022, nine of the top ten global anode material market players are Chinese, demonstrating their dominant power.

According to ICC Consulting, the top five are BTR (23.6%), Shanghai Shanshan (13.2%), Jiangxi Zichen Technology (9.8%), Hunan Zhongke Xingcheng (8.7%), and Guangdong Kaijin (8.4%). BTR and Shanshan supply graphite to the three major Korean battery companies. The only Korean company in the top ten is POSCO Future M, ranking joint ninth with a 2.3% market share.

Electric Vehicle Companies in Crisis Due to IRA Rush to Secure Graphite

Global electric vehicle and battery companies are striving to reduce excessive dependence on Chinese graphite amid global supply chain issues. Especially since the announcement of the Inflation Reduction Act (IRA) in August 2022, diversifying graphite supply chains has become an urgent task.

According to the IRA, to qualify for electric vehicle subsidies, a certain percentage or more of critical minerals such as battery cathode and anode active materials must be mined or processed in the U.S. or countries with which the U.S. has a Free Trade Agreement (FTA), or recycled in North America.

This percentage will rise from 50% in 2024 to 60% in 2025, 70% in 2026, and 80% from 2027 onward. Additionally, from 2025, subsidies will not be available if critical minerals are supplied from FEOC countries.

Global electric vehicle companies in crisis are independently securing graphite. Global mining companies, seeing the demand, are rushing into graphite mining.

Canadian mining company NextSource Materials built a graphite mine in Molo, Madagascar, Africa, in February last year. The annual mining scale is about 17,000 tons. From 2026, annual production will increase to over 150,000 tons. The company is also building an anode material plant in Mauritius, Africa, with an annual capacity of 3,600 tons.

NextSource signed a 10-year supply contract with German steel company ThyssenKrupp. ThyssenKrupp plans to supply graphite to an unnamed Japanese tech company. South Korea's POSCO International also signed a memorandum of understanding with NextSource in September last year for joint investment in the Molo mine to secure graphite supply rights.

NextSource Materials' Madagascar Molo Graphite Mine. Image courtesy of NextSource Materials.

Australian mining company Talga Group received permission from Swedish authorities in April 2024 and started a graphite mining project in the Vittangi area of northern Sweden. The company expects to begin mining in 2024 with an initial production scale of 19,500 tons per year.

European automakers have successively signed supply contracts with Talga Group. Talga plans to supply graphite to Automotive Cells Company (ACC), a battery company jointly owned by Stellantis and Mercedes-Benz, and Verkor, a battery company invested in by Renault.

Australia's Syrah Resources operates a graphite mine in the Balama region of Mozambique. The company increased production to 163,000 tons in 2022. Syrah is also building an anode active material processing plant in Louisiana, USA, planning to produce 11,250 tons annually.

Tesla signed a four-year graphite supply contract with Syrah Resources early in 2021, with an option to extend the supply. South Korea's LG Energy Solution and SK On also signed supply contracts with Syrah Resources, but these are reported to be non-binding deals.

Samsung SDI signed a contract to procure anode active materials from Syrah's Louisiana plant. The two companies plan to finalize a binding contract by July 10, 2024, after verification processes.

Australian mining company Magnis Energy is developing a graphite mine in Tanzania, Africa, with an annual capacity of 236,000 tons. The company also plans to build an anode material plant in New York. Magnis Energy signed a contract to supply 17,500 tons of anode active materials annually to Tesla starting February 2025.

Renascor Resources is developing the Siviour mine in South Australia, aiming for initial annual production of 28,000 tons. Production is expected to start in 2025. Renascor has signed supply contracts with South Korea's POSCO and Japan's Mitsubishi.

When Will South Korea Achieve Graphite Self-Sufficiency?

South Korea is estimated to import over 100,000 tons of graphite annually from China. In 2022, it imported 53,000 tons of natural graphite and 48,200 tons of synthetic graphite from China. Replacing these imports is essential for graphite self-sufficiency.

Korean companies are strengthening supply chains by diversifying natural graphite sources in Africa and Australia and expanding synthetic graphite production.

POSCO Future M, the only domestic graphite-based anode material manufacturer, has been importing spherical graphite from China, reprocessing it with surface coating, and supplying it to domestic and foreign battery companies. Separately, it produces synthetic graphite using coal tar, a byproduct of steelmaking.

POSCO Future M manufactures artificial graphite. Image courtesy of POSCO Future M

POSCO Future M currently has a total anode material production capacity of 82,000 tons, including natural and synthetic graphite. Of this, synthetic graphite production is 8,000 tons annually.

Synthetic graphite is significant for graphite self-sufficiency because it can be sourced domestically from raw materials to finished products, but its production scale is still limited. It is difficult to rapidly increase production to replace imports from China in the short term.

POSCO Future M plans to expand synthetic graphite production to 18,000 tons within this year and further increase it to 58,000 tons by 2026. The goal is to reach a production capacity of 153,000 tons by 2030. Natural graphite production is planned to expand to 154,000 tons in 2026 and 182,000 tons in 2030.

Natural graphite supply sources are also being diversified. POSCO International, a POSCO Group affiliate, signed a 10-year contract last September with NextSource to procure 30,000 tons annually of crystalline graphite (high-purity graphite with a flake-like shape) or 15,000 tons of spherical graphite from the Molo mine in Madagascar. POSCO International also participated in a capital increase of Black Rock Mining (Mahenge mine in Tanzania, Australia) and agreed to expand graphite purchase rights to 60,000 tons.

Through these two agreements, POSCO International expects to secure more than 90,000 tons of crystalline graphite, which will be supplied to POSCO Future M in Korea for reprocessing into anode materials.

Wastewater is generated during natural graphite processing and synthetic graphite manufacturing, and high amounts of electricity are consumed in high-temperature heat treatment processes. One reason Chinese companies have dominated the global graphite supply chain is that they have been relatively free from environmental pollution issues and have low electricity costs, enabling cheap graphite production.

For South Korea to strengthen its graphite supply chain, these policy issues must also be addressed.

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Korea International Trade Association, Impact and Countermeasures of China's Graphite Export Controls, 2023.10.23
SNE Research, Analysis of China's Graphite Export Regulations and Outlook, 2023.10.26
KDB Future Strategy Institute, Research on Core Items in Global Supply Chains (GVC), 2023.11.20
POSCO Future M Newsroom, Can't Make Batteries Without Graphite: TMI on Graphite, 2023.11.13
Yonhap News, Hyundai Motor to U.S. Government: "Immediate Exclusion of Chinese Minerals Unrealistic... Temporary Allowance Needed," 2024.1.22
Reuters, Graphite producers doing deals with automakers and battery groups, 2023.6.21
Mining Technology, Renascor signs MoU with Mitsubishi for graphite supply, 2023.7.19
Reuters, China's graphite curbs will accelerate plans around alternatives, 2023.10.23
Mining.com, NextSource begins graphite production in Madagascar, 2023.6.22
Mining.com, Syrah Resources inks deal with Samsung SDI to assess anode material supply, 2023.8.8