As graphite surges, expect more critical metal shortages 

It’s been a big month in mining circles, led by a surge in graphite stocks.

As you might be aware, on Oct. 20, authorities in China announced export restrictions over refined graphite. 

The move is aimed specifically at the electric vehicle market and graphite anode material used in EV batteries. 

If you follow the mining space closely, I’m sure this announcement hasn’t come as a surprise. 

In fact, I warned about just such a move in early October, in an article titled: “Which critical metal will China ban next?” Graphite and rare earths were the two commodities I 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. 

In another warning sign, the U.S. Department of Defense 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 department’s attempt to boost domestic supply. LYC received $120 million last year as part of a deal to build a new processing facility in Texas — on U.S. soil.  

But after China’s germanium and gallium export restrictions, the deal was sweetened, and in August the company received a further $258 million. 

Deals like this have barely raised an eyebrow, that’s why the graphite export tightening shocked the market into a panic last month. 

Shares in producer Syrah Resources (ASX: SYR) and South Australian developer Renascor Resources (ASX: RNU) have both climbed around 50% since the announcement in October. Renascor could become the world’s first purified spherical graphite supplier outside China as its Siviour resource hosts the globe’s second largest graphite deposit.  

Conditions change rapidly in the commodity market, that’s why investors should be positioning their portfolios ahead of these events. 

More supply cuts ahead 

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 Dec. 1? Perhaps. Especially when we consider graphite is a far more ‘mainstream’ commodity. 

It’s why investors should be broadening their exposure across numerous critical metal stocks set to surge on the back of heightening U.S. and China trade tensions. There’s a very real possibility things could escalate further. 

Russia, a commodity producing powerhouse, is in a prime position to maximize pain over the West by partnering with China. That could mean a multi-pronged attack placing export bans across numerous critical metals and energy. This would be devastating to manufacturers across Europe and North America. That’s why investors should seriously consider exposure to critical metal stocks. As the graphite development showed, the threats are real and reaching new levels of risk. 

Manufacturing of EV batteries, solar panels, smartphones, 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. And 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 multi-billion-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 U.S. 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 and mining. Their day of reckoning is approaching fast. 

It’s why I believe critical metal stocks are positioned for a major set-up in 2024. 

Given that stock prices remain depressed, now is the ideal time to align your portfolio to this very real threat.

James Cooper is a geologist and mining analyst. Based in Melbourne, he’s now the resident commodities analyst at Fat Tail Investment Research and editor for the Diggers & Drillers Publication. You can follow him on X (Twitter) @JCooperGeo.