Graphite Supply-Demand Balance: Assessing Production, Trade, and Inventory Shifts in Early 2026

The graphite market is in the grip of severe oversupply, a condition that has driven prices to multi-year lows. This imbalance stems from a fundamental mismatch: while demand has grown strongly, supply growth has outpaced it, leaving the market in a surplus. The result is a persistent deflationary pressure that shows no sign of abating.

China is the epicenter of this glut. The nation is projected to control roughly 80 percent of battery-grade graphite production through 2035, absorbing nearly all recent supply growth and dominating refining capacity. This concentration has created a structural vulnerability, as the market remains exposed to supply shocks and price swings from a single source. The weakness is evident in the Producer Price Index for carbon and graphite products, which continues to signal ongoing deflationary pressure in the manufacturing sector.

The situation has been exacerbated by a wave of new U.S. trade measures, acting as a direct catalyst to address the oversupply. In early February, the U.S. Department of Commerce finalized aggregate antidumping and countervailing duties (AD/CVD) of at least 160% on certain Chinese graphite imports. This decision, which concluded a probe into Chinese graphite being unfairly dumped and subsidized, directly targets the source of the market's imbalance. The move is expected to materially alter the economics of Chinese graphite imports and reinforce the strategic need for a domestic supply chain.

Production and Inventory Trends: Responding to Price Pressure

The oversupply has forced a recalibration in the physical supply chain. While demand has grown strongly, the market's response has been to cut back on the most vulnerable production. As prices sank in 2024, significant Chinese capacity came offline, demonstrating how low prices directly curtail output. This dynamic highlights the market's immediate reaction to weakness: producers simply stop producing when it's unprofitable.

The broader production picture, however, tells a more complex story. Global natural graphite output has expanded dramatically, rising from 966,000 metric tons in 2020 to 1.6 million metric tons in 2024. Yet this growth has been almost entirely concentrated in China, which accounts for nearly all recent supply increases and is projected to control roughly 80% of battery-grade production through 2035. This concentration means the global market's physical response to oversupply is heavily filtered through a single, dominant producer.

Against this backdrop of Chinese dominance, new projects are emerging to diversify physical supply. One notable development is the strategic acquisition by Nouveau Monde Graphite. The company has purchased a brownfield site adjacent to its greenfield project in Bécancour, Québec, to accelerate its first-stage refining operations. This move is directly aimed at fulfilling a 13,000-tpa active anode material offtake agreement with Panasonic Energy. By leveraging existing infrastructure, Nouveau Monde is shortening its time-to-market and building a more integrated North American supply chain.

Another potential new source is coming from Madagascar. Global Li-Ion's Ambato-Arana project has seen a key regulatory shift, with the Malagasy government lifting a 16-year moratorium on new mining permits in January 2026. The project holds historic production data and independent testing shows its graphite concentrate has 96% carbon purity with strong large-flake proportions. If developed, it could provide a new source of premium material, adding to the limited non-Chinese supply options.

The bottom line is a market caught between two forces. On one side, price pressure is actively reducing supply, particularly from the most vulnerable producers. On the other, strategic projects are moving forward to build alternative supply, driven by the need for diversification and the long-term demand outlook. The path to balance will depend on whether these new projects can ramp up fast enough to absorb the structural oversupply, or if prolonged weakness continues to suppress production across the board.

Trade Policy and Physical Market Rebalancing

The new U.S. trade measures are poised to directly reshape physical flows in the graphite market. By imposing aggregate antidumping and countervailing duties of at least 160% on certain Chinese graphite imports, the U.S. government is fundamentally altering the competitive landscape. This decision is expected to enhance the position of domestic producers, most notably Titan Mining, the only U.S. company currently producing end to end natural flake graphite. The duties create a significant tariff wall, reducing the economic viability of Chinese imports and reinforcing the strategic need for a secure, domestic supply chain.

For U.S. and European producers, the outlook remains challenging. Analysts note these regions face high costs and limited alternatives, with trade tensions and tariffs further constraining non-China supply. The new duties add another layer of friction, making it harder for Western producers to compete on price even as they build capacity. This dynamic underscores a key vulnerability: the physical market's rebalancing is complicated by geopolitical friction, which can slow the integration of new, diversified sources.

The primary risk is that these trade barriers merely shift, rather than eliminate, the oversupply. With China controlling roughly 80 percent of battery-grade graphite production through 2035, the nation has significant capacity to respond. It could redirect exports to other markets, increase domestic refining to absorb its own surplus, or find ways to circumvent the duties. In this scenario, the physical glut persists, simply moving from one region to another. The trade measures address a symptom-unfair competition-but do not resolve the core issue of supply outpacing demand. The market's path to true balance will depend on whether new, non-Chinese projects can ramp up fast enough to absorb the structural oversupply, or if prolonged weakness continues to suppress production across the board.

Catalysts, Scenarios, and Key Watchpoints

The path to a balanced graphite market hinges on a few critical near-term events and metrics. The oversupply cycle is not self-correcting; it requires catalysts to shift physical flows and reset expectations. Three watchpoints will determine if the market is moving toward equilibrium.

First, the durability of the new U.S. trade order is paramount. The final determination of aggregate AD/CVD rates of at least ~160% is a structural shift, but its impact depends on the U.S. International Trade Commission's affirmation in March and, more importantly, the actual volume of Chinese graphite imports that are blocked. If the duties are upheld and enforceable, they will create a firm price floor and redirect physical flows toward domestic and alternative sources. This will test whether the new price floor holds or if Chinese producers find ways to circumvent the tariffs, maintaining the oversupply pressure.

Second, the execution of key non-Chinese projects will dictate future supply diversification. Nouveau Monde Graphite's strategic acquisition of a brownfield site in Bécancour is a direct move to accelerate its first-stage refining operations and fulfill a 13,000-tpa active anode material offtake agreement with Panasonic Energy. Its success in shortening the time-to-market and managing costs will be a critical signal for the viability of North American alternatives. Similarly, the progress of Global Li-Ion's Ambato-Arana project in Madagascar is a key indicator. The project's ability to move from a renewed permitting pathway to construction and production will add a new source of premium material to the global mix. The watchpoint here is not just the timeline, but whether these projects can ramp up efficiently and cost-effectively.

The third and most telling watchpoint is inventory levels. After years of oversupply, the market's physical inventory is a key lagging indicator. The new trade barriers are expected to reduce imports, which should begin to draw down these stockpiles. A sustained decline in inventories would signal that supply is finally aligning with demand, marking a potential end to the deflationary cycle. Conversely, if inventories remain elevated or continue to build, it would confirm that the structural oversupply persists, regardless of policy moves.

The bottom line is that balance is not guaranteed. It will be forged by the interplay of these catalysts: the enforceability of trade policy, the speed and cost of new project execution, and the physical drawdown of excess stock. Monitoring these watchpoints will reveal whether the market is transitioning from a period of severe oversupply to one of gradual rebalancing.