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Japan Looks Beyond China for EV and Chip Materials

Japanese companies that have relied on critical battery and semiconductor materials made in China are moving to broaden their sources as Beijing tightens export controls.

The Chinese government has decided to require export permits for a portion of graphite shipments starting Friday. Graphite is essential in making negative electrodes in lithium-ion batteries for electric vehicles

Although the licensing requirement stops short of a ban, it could reduce China’s graphite exports. More than 80% of natural graphite used in Japan is sourced from China.

Japan’s Mitsubishi Chemical Group is considering stepping up electrode material production in China’s Shandong province if graphite imports are disrupted. The company is also exploring Australian partnerships to produce the mineral in Mozambique and Norway, in an effort to diversify its supply.

Nissan Motor will consider procuring graphite and other critical EV materials from other regions, according to a company representative.

Panasonic Energy, the battery subsidiary under Panasonic Holdings, is conducting joint research with a Canadian graphite company toward mass production of electrode material. The company’s efforts have received a lift from September’s agreement between Japan’s Ministry of Economy, Trade and Industry (METI) and the Canadian government to strengthen the battery supply chain.

Global graphite production amounted to 1.3 million tons last year, according to the U.S. Geological Survey, growing by 15% on the year as EVs caught on.

China accounts for 70% of the production volume, and also produces a large amount of artificial graphite. It is a major low-cost exporter of both materials.

“The costs of procuring graphite will inevitably rise,” said Noboru Sato, visiting professor at Nagoya University. “The focus will be on how companies maintain their competitive advantage while bearing the costs.”

Graphite is not the only critical mineral over which China looms large. In August, Beijing toughened export restrictions for gallium and germanium, rare metals used to make electronic components and semiconductors. Exports of both metals have fallen steeply, Chinese customs data show.

Earlier this month, China announced more stringent controls on rare earths, like the kind used in EV motors. The new restrictions are set to be in place for two years.

Japanese manufacturers are also diversifying sources for materials not subject to Chinese export controls. Chemical group Kanto Denka Kogyo is conducting tests on lithium compounds from regions such as South America to make battery electrolytes. The company is also teaming up with Sumitomo Metal Mining to test technology for recycling lithium from spent EV batteries.

Japan is also using diplomacy and state aid to ensure stable supplies of critical materials.

When Japanese Prime Minister Fumio Kishida met with Chinese President Xi Jinping in San Francisco on Nov. 16, the two leaders confirmed the establishment of a new bilateral export control dialogue. Senior trade officials from both sides will regularly hold consultations on export curbs.

METI is seeking 260 billion yen ($1.74 billion) in this fiscal year’s supplementary budget proposal to support Japanese manufacturing of storage batteries. Some of this money could go toward companies investing to produce artificial graphite in Japan.

Last year’s extra budget provided about 200 billion yen to support mining, refining and processing critical minerals. Companies investing in rare metal production overseas will be subsidized by up to half.

Companies outside of Japan are also moving to limit their exposure to tighter Chinese supplies. South Korea’s Posco Future M, which makes battery material, has moved up plans to make artificial graphite from coal tar, a byproduct can be procured domestically.

Source: Nikkei Asia