US to end tariff exemption on Chinese graphite anodes

The United States Trade Representative's (USTR) office announced a further extension of all China Section 301 tariff exclusions on 352 Chinese import and 77 pandemic-related categories through June 14, after which, the tariff exclusion for China’s graphite anodes will not be extended, the USTR announced on Friday May 24

The tariffs on graphite anodes were launched during the Trump administration using Section 301 Tariff back in 2018. But due to China’s dominant role in anode supply chain, the 25% tariff had been waived in recent years.

The market previously expected that the US might extend the exemption until 2026, which was the case for natural graphite tariffs according to announcements made earlier in May.

Despite the tariffs exemption set to end after June 14, some market participants downplayed the effect on the Chinese anodes sector given the complex situation of China’s export control on graphite and the possibility of intermediary trade through US Free Trade Agreement (FTA) partner countries, sources said.

Chinese anode exports have been affected by the export control policy since December when the east Asian country started its export license requirement for certain graphite-related products.

“The review process has been quite slow since the start of the year. Whether there will be the tariffs [or not], the total anode export volumes will be affected by the license control policy,” an anode producer in China said.

China’s total exports of synthetic and natural graphite anodes to the US stood at 10,464 tonnes in the first quarter of 2024, according to Fastmarkets’ research.

“This only accounts for a tiny share of China’s total anode output at 370,000 tonnes within the period,” a second anode producer in China said.

Determination in supply chain diversification

The end of the exclusions for natural and synthetic anodes under the Section 301 Tariff and its extension of tariffs on China’s natural graphite and the IRA-credit for China’s graphite shows US determination in supply chain diversification in a practical way, according to sources.

“Together with China’s export control, the latest tariff is bound to result in downstream battery makers’ trying to secure their source of raw materials by searching for alternative suppliers outside of China,” a third anode producer said.

China is a major graphite supplier globally. Anode imports in the US grew at CAGR of 24% during 2019-2023. Total imports of anode materials increased to 58,835 tonnes in 2023 against 19,746 tonnes in 2019, majority of which came from China, according to Fastmarkets’ research.

“The tariffs on Chinese anodes could help support local supply chain development by encouraging downstream buyers to sign off-take agreements with local suppliers, thus providing better funding conditions for some junior graphite players outside of China,” a graphite supplier outside of China said.

The third anode producer added, “The 25% tariff is providing new producers with space [to impose] price premiums over Chinese anodes. If they can keep the price premium within 20-25%, they would maintain their competitiveness against Chinese materials.”

This also means that the 25% tariff could support the development of two-tiered graphite market and the emergence of a premium for IRA/ Foreign entity of concern (FEOC)-compliant material, which is largely needed by ex-China anode producers to be competitive and to attract investment, according to Georgi Georgiev, Fastmarkets’ battery raw material analyst.

“But virtually all cell makers and OEMs are vulnerable to restrictions on graphite and anode supply from China, including anode producers outside China who rely on precursors from China. Now the EV supply chain in the US is 100% dependent on anode supply from China, making graphite and anodes the Achilles heel of the US in this trade confrontation,” Georgiev said.

Chinese anode producers’ overseas expansion

The deviation from Chinese anode supply chain has also led to some Chinese producers setting up plants outside of China to deal with the tariff or FEOC restrictions.

“With anode plants overseas in countries like Indonesia and Morocco, we expect to see flows of anode material to the US in the near future. However, in the long-term the position of Chinese anode producers in the US market will remain uncertain given the rising tensions between the US and China,” Georgiev said.

But some market participants thought that while it is a general trend for anode producers to go overseas, most tend to stand on the sideline now given the uncertain geopolitical tensions between the US and China, and possible actions from Europe.

“When we talk about going overseas, you still need to figure out the question of where to invest. A sound political environment, mature equipment, sources of raw materials etc would be important factors,” a fourth source in China said.

Source: Fastmarket