Demand for electric-vehicle battery anode materials is rapidly increasing outside China, but volumes are still concentrated among Chinese companies. As Chinese firms with most of the graphitization equipment compete on synthetic graphite costs and yields and expand supply, South Korean material makers have been unable to increase their share even in a growing non-China market. Critics say South Korean companies need to raise costs and yields at their production bases while securing a way for domestically produced output to be recognised.

Competition among Chinese anode material companies is intensifying, according to energy market research firm SNE Research. BTR, which ranked No. 2 in January to August last year, overtook Shanshan to rise to No. 1 in the same period this year. No. 5 Shenzhen Shijiumiao increased 51.1 percent, the fastest growth among major companies. The combined share of the top two fell to 39.5 percent from 41.8 percent. The differences in growth reflect improvements in synthetic graphite costs and yields and whether companies succeeded in diversifying customers. This means a market once divided by leaders is dispersing toward mid-tier firms with cost competitiveness.

Graphitization equipment underpins Chinese companies' ability to compete on costs. Synthetic graphite is made by heating petroleum coke or needle coke to more than 2,500 degrees Celsius in an electric furnace, a process called graphitization. It uses more electricity than natural graphite and costs more per ton, but battery makers use it because it delivers uniform quality. Raw-material trading platform MetalsHub said 98 percent of global graphitization capacity is in China. With an electricity-intensive process concentrated in one country, the extent to which firms can raise yields, the share of acceptable output, from the same equipment determines costs.

Chinese companies that have lowered costs based on graphitization equipment are now moving to increase customers outside China. Anode materials loaded into electric vehicles worldwide in January to August rose 21.1 percent from a year earlier, SNE Research said, while markets excluding China increased 27.5 percent in the same period. As a result, the share of markets outside China in total loadings rose by 2 percentage points. Increased battery production in Europe and in Asia excluding China led demand, while a drop in North American electric-vehicle battery usage partly limited the rise.

As Chinese companies expanded customers, volumes for South Korean companies fell instead. POSCO Future M, the only South Korean company in the top 10, saw loadings drop 15.5 percent and remained ninth. Eight of the top 10 companies are Chinese, excluding POSCO Future M and Japan's Hitachi Chemical.

The cost and yield criteria that separated anode material companies' rankings in China are expected to become competitive benchmarks in Europe as well. The European Commission's Industrial Acceleration Act (IAA), drafted in early March, requires that at least 5 battery components be sourced as originating in the EU three years after the law takes effect.

The draft makes cells, cathode materials and battery management systems (BMS) mandatory, and did not specify the other 2 items. With it open whether anode materials will be included in the localisation targets, what South Korean anode material companies will gain from the system is also not yet determined. With the system not assigning positions, the conditions for winning European customers come down to costs and yields. Under the localisation requirement itself, Chinese companies could also meet it by producing in Europe. Analysts say competition within Europe will ultimately become a fight to raise utilisation rates and yields to lower costs.

How much Europe will recognise materials produced in South Korea remains a variable. The draft allows products from countries that have free trade agreements (FTAs) with the EU to be recognised as equivalent to EU-origin under certain conditions. If this clause remains in the final version, materials made at South Korean plants could be included in the beneficiaries to some extent. An industry official said, "Chinese companies are lowering prices further by raising graphitization yields, so calculations are complicated between supply chain diversification and cost reduction," adding, "How to make up for the burden on South Korean material companies through subsidies or policy support is a task."