The graphite lesson: Expect more critical metal shortages
It’s been a big couple of weeks in mining circles and that’s being led by a surge in graphite stocks.
As you might be aware, on 20th October, authorities in China announced export restrictions over refined graphite…
It’s aimed specifically at the electric vehicle market, graphite anode material used in EV batteries.
But as a long term reader, I’m sure this announcement hasn’t come as a surprise.
In fact, I warned readers of MINING.com in early October… “Key Question: Which critical metal will China Ban next?”
Graphite and rare earths were the two commodities flagged as the most likely contenders… That’s because China dominates the supply of these two key minerals.
We saw the first shot fired in July after export restrictions were placed over gallium and germanium, key commodities in the manufacture of semiconductors.
Another warning sign… the US Department of Defence has steadily poured billions into critical metal projects over the last 12 months as it scrambles to secure alternative supplies.
The Australian rare earth producer Lynas (ASX: LYC) was one of the big benefactors of the departments attempt to boost domestic supply.
LYC received $120 million last year as part of a deal to build processing facilities on US soil.
But that deal was sweetened after China’s germanium and gallium export restriction, the company received a further $258 million in August.
Deals like this have barely raised an eyebrow… That’s why last month’s graphite export tightening shocked the market into panic buying…
Since the announcement, graphite producer Syrah Resources (ASX: SYR) has climbed more than 60%.
Conditions change rapidly in the commodity market, that’s why you should be positioning your portfolio ahead of these events.
Expect more critical metal supply cuts
The market didn’t pay attention to the gallium and germanium trade restrictions in July.
So, will it wake up to the looming supply problems once graphite’s stranglehold comes into force on December 1st?
Perhaps.
Especially, when we consider graphite is a far more ‘mainstream’ commodity.
Its why investors should be broadening their exposure across numerous critical metal stocks set to surge on the back of heightening US and China trade tensions.
There’s a real possibility things could escalate further from here…
Russia, a commodity producing powerhouse is in prime position to maximise pain over the west by partnering with China.
A multi-pronged attack placing export bans across numerous critical metals and energy.
This would be devastating to manufacturers across Europe and North America.
As last week’s development showed, the threats are real and reaching new levels of risk.
Manufacturing of EV batteries, solar panels, smart phones, laptops, TV’s, appliances, medical and defence equipment all hinge on the reliable supply of critical metals.
These raw materials are fed by China’s mighty midstream and downstream capacity.
With the flick of a switch the world’s most important supplier can cut exports.
This is unfolding far earlier than most geopolitical experts would have expected… Who knows how bad this situation could get in the months to come.
It seems unthinkable that multibillion dollar companies like Tesla, Toyota or BMW would be left stranded without the raw materials needed to build their products.
It’s the same situation for the massive US tech and defence companies relying on China’s supply of rare earths.
For too long, manufacturers have ignored the importance of investing in upstream supply… Mining.
Their day of reckoning is approaching fast.
That’s why your money should remain on the side of the miner.
James Cooper is a geologist and mining analyst. Follow him at Twitter (X) at @JCooperGeo