READ - GRAPHITE INDUSTRY Graphite producers say 'foreign entities of concern' exception is a fig leaf
The mill line at Syrah Resources' Vidalia graphite processing facility in Louisiana. The plant is the only graphite processing operation in the US.
Source: Syrah Resources Ltd. |
The Biden administration's recent decision not to restrict graphite in the Inflation Reduction Act is seen as a loophole for automakers facing limited supply outside of China, North American trade groups and graphite companies told S&P Global Commodity Insights.
On May 3, the US Treasury Department and Internal Revenue Service released final rules defining how electric vehicle buyers could receive a tax credit of up to $7,500 per vehicle if the vehicle meets certain sourcing requirements. As part of the requirements, an EV cannot use metals from any Foreign Entity of Concern (FEOC), defined as China, Russia, North Korea and Iran. However, the administration declared graphite an "impracticable-to-trace," low-value mineral until 2027, allowing battery-makers to buy from China-controlled companies.
North American producers said the justification is a fig leaf aimed at covering up a glaring supply gap between producers based in China and producers elsewhere.
"This is more about the realities of China dominating the graphite industry," Erik Olson, representative for the North American Graphite Alliance (NAGA), said in an interview with Commodity Insights. "We talked extensively with our companies, and they have been tracing things for years."
The alliance consists of Anovion LLC, Epsilon Advanced Materials Pvt. Ltd., Northern Graphite Corp., Nouveau Monde Graphite Inc. and NOVONIX Ltd.
In early April, NAGA asked the Biden administration to classify battery-grade graphite as a traceable mineral. If the administration had heeded this request, cars that include graphite sourced from China-controlled companies would not fit the criteria for the tax credit.
"There's a lot of investment in the US and Canada trying to scale to meet the demand, but they're still in that process right now," Olson said.
Traceability not so hard Several supply chain tracking services are turning their focus to the critical minerals sector, including Circulor Ltd. and Everledger Ltd., and they argue that graphite could be traced.
"We haven't found anything that we can't trace," Ellen Carey, chief external affairs officer at Circulor, told Commodity Insights.
"There are different approaches, given industrial makeups and materials, but when you illuminate a supply chain and pull the necessary data from each of the supply chain participants, things are traceable," Carey said, while cautioning that talking to suppliers in China "is not a cakewalk."
The final rules require automakers to apply for the tracing exception and submit a report demonstrating how they will comply with the FEOC restriction once the transition period ends.
There are worries that automakers will wait until the end of the two-year period to start talks with producers that are compliant with the Inflation Reduction Act (IRA). The transition period "also gives the Chinese, Korean and Japanese companies time to potentially situate themselves outside of China in corporate structures that give them access to the credits," Ben Steinberg, executive vice president of the Battery Materials & Technology Coalition trade group, said in an interview.
Industry participants said any delay in policy support will also risk the development of an IRA-compliant supply chain.
"Ultimately the pace of development of meaningful ex-China and US domestic supply of graphite/anode material will be slower than it otherwise could have been," Shaun Verner, CEO and managing director of Syrah Resources Ltd., said in an email.
Glaring supply gap With graphite comprising the largest component of the lithium-ion battery by weight, automakers are in a crunch to find supplies outside China. China produced almost 70% of the world's natural and synthetic graphite in 2023 and holds almost all the processing capacity for making battery-grade graphite, according to Benchmark Mineral Intelligence.
Industry participants said supply scarcity is the real reason behind the graphite exception, as requiring IRA-compliant graphite may have left several automakers out of the IRA benefits. Natural graphite imports into the US from China totaled $110.1 million in 2023, according to data from the S&P Global Market Intelligence Global Trade Analytics Suite.
"It is well understood that graphite, due to its intensity by mass in a cell and the domination of China in all parts of the supply chain, is the critical determinant to a significant number of EVs qualifying or not for the Section 30D consumer credit under the FEOC provisions this decade," Syrah's Verner said.
Managing China's dominance in the FEOC guidance could have been done "by making it a traceable material and then giving [automakers] reprieve if they sign offtakes with FEOC-compliant entities," Steinberg said.
The US has no active graphite mines and one processing plant, Vidalia, with 13 projects in the pipeline, data from S&P Global Market Intelligence shows. There are also a host of projects in Canada and Brazil.
EV-makers wanted exception "It's more about the reality of the supply issues and what the autos want [right] now versus trying to scale [an IRA-compliant supply chain] as quickly as possible, which is what the graphite companies are trying to do," NAGA's Olson said.
North American graphite producers are also pushing for the Biden administration to reinstate a 25% tariff exemption on graphite produced in China, arguing that the duty would also incentivize automakers to sign offtakes.
The tariff was created during the Trump administration.
Automakers and battery producers have lobbied for graphite to be defined as untraceable or impracticable to trace in the FEOC guidance, including submitting comments to the US Treasury Department and IRS in early 2024 during the open comment period.
In a January letter to the two government agencies, Volkswagen Group of America Inc. requested that graphite be given a
permanent tracing exception. "Graphite is particularly difficult to track as battery cell manufacturers frequently utilize a mix of both synthetic and natural graphite in their batteries, resulting in a large number of suppliers within scope," the car manufacturer said.
South Korea-based battery producer SK On Co. Ltd. also sent a letter to the Treasury Department in January, requesting that automakers be given a transition period until 2027 for graphite. "The proposed regulation will effectively block manufacturers from receiving the tax credit," SK On wrote.
Credit - Link -
https://www.spglobal.com/marketintelligence/en/news-insights/podcasts/next-in-tech-episode-175 US auto / battery wants a permanent untracable -------> not question it's china graphite
Korea - wanted to 2027 US 25% tarriffs is till 2027 ( interesting )
2027 ----> allows others to set shop up in another country - yet still Chinese graphite
bypassing China tarriff using another country.
Silver.... your former post.
Instate 25% NOW would solve lots and force US car or battery manufacturers to
sign off take deals now.... waiting 2 yrs.... leaves juniors vulnerable easy pickings.
= not protecting ( QC resources, junior, investors ).