In 2020, the exports of two varieties of graphite from China to Sweden nearly ceased, and they completely vanished in 2021 and 2022, reflecting the impact on the graphite export market. The reason is that In early 2020, Swedish battery manufacturers became aware of a concerning development.
Their Chinese suppliers were no longer capable of supplying them with graphite, a crucial mineral required for the manufacturing of lithium-ion batteries. Initially, the Swedes hoped that this issue would resolve itself over time. However, three years later, as Chinese investment in the European battery industry grew, Swedish companies continued to face significant competition.
While the Chinese Ministry of Commerce has not officially implemented any sanctions, numerous Chinese graphite exporters are effectively experiencing sanctions in all but name. An individual company was notified that Chinese regulatory authorities have ceased issuing licenses for exporting graphite to Sweden.
This development is particularly concerning for producers who depend on China as their primary source for both natural and synthetic graphite, as China supplies over 60% of the global natural graphite and nearly all of the synthetic variants. These producers heavily rely on Chinese graphite anodes for their battery cells, making the situation even more alarming.
The possibility of supply disruptions from China carries the potential to significantly impact global supply chains, leading to increased costs and disruptions in production. This scenario holds particularly grave implications for Sweden, given its nascent battery industry. A complete prohibition on graphite exports from China would undoubtedly inflict substantial damage on Sweden’s efforts to establish and expand its battery sector.
In its only official statement concerning this matter, earlier this year, the European Commission expressed its concern over the negative impact caused by the decrease in Chinese graphite exports. The Commission highlighted that this decline is directly affecting battery production in Europe, which is a pivotal sector in the EU’s ambitious green transition efforts.
China frequently flexes its power by employing punitive measures in response to political disputes. For instance, in a dispute with Australia that commenced in 2020, China officially banned coal imports temporarily (which was later lifted) and unofficially imposed restrictions on lobster imports, causing severe repercussions for Australian sellers heavily reliant on the Chinese market.
Chinese officials have also issued threats of banning mineral exports, including rare earths, to the US as a retaliation to sanctions. Restrictions on the export of battery minerals such as lithium and cobalt have become increasingly common. According to the Organisation for Economic Co-operation and Development (OECD), China has been identified as the largest offender in terms of limiting the supply of materials essential for the renewable energy transition.
As graphite exports to Sweden experienced a drastic decline, China’s investment in battery and electric vehicle ventures throughout Europe has witnessed a remarkable surge. Notably, China’s leading battery manufacturer, CATL, made an astounding $8 billion investment in a Hungarian factory last year, marking one of the largest foreign investments ever recorded in the country.
Additionally, Chinese firms are constructing smaller yet similar factories in Poland. Consequently, there has been a notable increase in graphite exports to both Hungary and Poland.
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