China’s graphite squeeze good for North American miners, says Eight Capital

A move by China to make it more difficult to export graphite should be good news for domestic graphite stocks.

That’s the take from Eight Capital analyst Puneet Singh, who issued an update to clients October 23 on the matter.

On October 20, China’s Ministry of Commerce curbed exports of graphite. The country currently accounts for two-thirds of the global production of graphite. Graphite is an essential component in lithium-ion batteries used by electric vehicles.

With an eye towards North American pubcos involved in mining the element, the analyst gave his take on this development.

“This year, graphite equities have come under pressure, largely due to graphite prices out of China retracting,” Singh wrote. “Specifically, prices of small flake graphite, a common precursor to Coated Spherical Purified Graphite (CSPG), which is used in battery anodes, have declined by +24% YTD (currently US$757/t). Currently, China dominates the flake graphite supply chain. In 2022, China mined 63% of the world’s flake graphite and is expected to produce 67% this year, according to Benchmark. As a result, Western countries are reliant on Chinese flake graphite. In 2022, the USA and Europe did not mine any flake graphite, while Canada had one operating mine producing ~1% of global supply. According to the USGS, the USA imported 63kt of flake graphite in 2022, a 55% increase over 2021, with the main import source being China. We believe this development is beneficial for pricing which will have a knock-on effect to graphite equities.”

The analyst singled out Nextsource Materials (Nextsource Materials Stock Quote, Chart, News, Analysts, Financials TSX:NEXT) and SRG Mining (SRG Mining Stock Quote, Chart, News, Analysts, Financials TSXV:SRG) and two companies that could benefit from China’s actions.