Graphite stocks have surged. So where do they go from here?

It’s been a week since China announced plans to expand export controls to include a range of graphite products, effective 1 December 2023. But the big question is – where to from here?

A read-across from gallium and germanium

Back in August, China introduced similar controls on the export of gallium and germanium, where it produces approximately 80% of global gallium and 60% of germanium supply, according to the Critical Raw Materials Alliance.

“At the announcement, gallium prices saw a minor increase, and China's gallium and germanium exports soared to almost 14 tonnes in July, with germanium in particular doubling from June volumes, as overseas buyers rushed to secure supply before the restrictions came in,” Morgan Stanley analysts said in a note on Tuesday.

“While China's policy did not ban exports, in August, exports of germanium fell to almost 0 and gallium exports did fall to zero, leading to a temporary decline in gallium prices as domestic stockpiles rose.”

Gallium prices have rallied steadily in recent weeks, and germanium prices are also rising (~60% and ~6%, respectively, since the announcement).

Gallium and germanium price chart (Source: Morgan Stanley)

A Brief Recap of Events

• What happened: On Friday, 20 October, China announced export controls on a range of graphite products effective 1 December 2023

• The impact: China produces 78% of global natural graphite, 58% of synthetic graphite production, 99% of refined production and 93% of the anodes used in EVs are produced in China too, according to Benchmark Minerals Intelligence

• Pains for importers: South Korea and US imported approximately 94% and 63% respectively of their natural and synthetic graphite from China in 2022

Syrah Resources (ASX: SYR), the ASX’s largest producer, rallied as much as 109% between October 20-24. Its gains have since eased to around 56%.

Syrah Resources daily chart (Source: TradingView)

The outlook

The analysts noted the limited impact on current Chinese graphite prices but the recent surge in graphite companies like Syrah and Talga Group.

“While we don't currently cover graphite as a commodity, we would see room for prices to move higher given China's supply dominance, depending on how stringent export controls are,” the analysts said.

“As outlined above, the price response for gallium and germanium only started recently, despite export controls starting in August.”