Japanese companies try to “get out of China” on EV materials

China to tighten graphite export regulations in December, Japan imports more than 80% of its natural graphite from China. Mitsubishi Chemical is considering cooperation with Australian companies that produce graphite in Mozambique and Norway.

Japanese companies have begun to diversify and localize their procurement of important materials in order to break away from their dependence on China. As China tightens export controls for graphite and other materials used in batteries for electric vehicles (EVs) from December, the uncertainty of securing materials for Japanese companies has intensified, spreading the risk of procuring materials that are indispensable for the production of core components.

China has decided to implement a licensing system for the export of some graphite from December. Although there is no ban on exports per se, local companies will not be able to export without examination and authorization. It is likely that the volume of exports will decrease.

Graphite is essential for the anode of lithium-ion batteries for EVs. Japan imports more than 80% of natural graphite from China.

Mitsubishi Chemical Group imports graphite from China and produces anode materials at its plant in Kagawa Prefecture, Japan. If graphite imports stagnate, consideration will be given to increasing production of anode materials at a plant in Shandong Province, China. It is also considering diversifying its supply sources by cooperating with Australian companies that produce graphite in Mozambique and Norway.

Nissan has also indicated that it is discussing the possibility of procuring key materials for EVs, such as graphite, from other regions. The supply of batteries such as these has not yet been affected at this stage, but it is promoting the increase of graphite stocks and the selection of alternative suppliers through its suppliers.

Panasonic Energy, the battery business of Panasonic Holdings (HD), is promoting joint research on mass-produced anode materials with a Canadian graphite company. Japan’s Ministry of Economy, Trade and Industry (METI) signed a memorandum of understanding with the Canadian government in September to strengthen the battery supply chain.

According to the U.S. Geological Survey, graphite production reached 1.3 million tons in 2022, a 15% increase from the previous year as EVs become more popular. China accounts for 70% of the production, and there is a lot of artificial graphite. All are supplied to foreign countries at low prices. Noboru Sato, a visiting professor at Nagoya University in Japan, pointed out, “The rise in the procurement cost of graphite is inevitable. The focus is on how companies can maintain competitiveness while bearing the cost”.

In addition to graphite, China on August 1 strengthened export controls on the rare metals gallium and germanium, which are used as electronic parts and semiconductor materials. China’s customs data showed a sharp drop in exports of these two products. It also said in November that it would strengthen the management of rare earth resources used for EV motors over a 2-year period.

Mitsubishi Chemical Group will also expand the source of supply of gallium, whose imports from China through trading companies and others have currently ceased. Currently, it will respond with stockpiles, and if the export control continues for a long time, it will purchase gallium from outside of China.

Japanese companies are also diversifying their sources of supply for raw materials that are not subject to China’s export controls. As for lithium compounds used as raw materials for electrolytes in lithium-ion batteries, Kanto Denka Kogyo is conducting experiments to use compounds from other regions, such as South America. In cooperation with Sumitomo Metal Mining, we are also promoting experiments to verify that lithium can be extracted from used EV batteries and reprocessed into electrolytes.

The Japanese government hopes to secure the stability of important materials through diplomatic channels and financial support for companies. At the China-Japan summit meeting on November 16, both sides confirmed that a new China-Japan export control dialogue mechanism will be established. Officials at the level of Director General in charge of trade will consult regularly on the export control situation of the two countries.

Japan’s Ministry of Economy, Trade and Industry (METI) has included 260 billion yen in the 2023 supplemental budget to support the manufacturing of storage batteries in Japan. Japanese companies that are committed to the localization of artificial graphite, which is used as negative electrode material, will be the target of support.

Japan’s FY2022 supplemental budget provides about 200 billion yen for mine development, smelting and processing of important minerals. Japanese companies will be able to receive up to half of the subsidy when they promote the development of rare metals overseas. It is envisioned to be used for the non-ferrous metals industry, etc.

Meanwhile, overseas companies are also stepping up their efforts to cope with the stagnation of procurement from China. POSCO Future M (formerly POSCO Chemical), a South Korean battery material company, will advance the production of synthetic graphite using coal tar, which can be procured domestically, as a raw material. The plan is to advance production from the first half of 2024, which was originally envisioned, to within the year.