March 2026 — The blocking and reopening of the Strait of Hormuz has not only churned international oil prices but also sparked profound reflection on technology routes and supply chain security in the lithium battery anode industry. As petroleum coke and needle coke prices surge and plunge with crude oil, and as high-end raw material supply bottlenecks become increasingly prominent, Chinese anode companies stand at a crossroads of technology choice and strategic positioning.

Raw Material Dilemma: Needle Coke Scarcity and Dependency

Currently, synthetic graphite dominates lithium battery anodes, accounting for over 90% of anode material shipments . High-end synthetic graphite tends to favor needle coke—because it easier to form ordered graphite crystal structures, lowering graphitization costs while offering superior electrical conductivity and lithium intercalation capacity, significantly enhancing battery performance .

However, needle coke is a scarce resource. Fastmarkets data shows China imported 127,800 tonnes of oil-based needle coke in 2022, a 99.33% year-on-year increase, with 59.1% originating from the UK . This dependence on imported high-end raw materials becomes a potential supply chain risk amid geopolitical conflicts.

"Meeting projected global demand for over 3 million tonnes of synthetic graphite by 2025 will require approximately 4 million tonnes of needle coke—exceeding current production forecasts," noted Fastmarkets analyst Georgi Georgiev. To fill supply gaps and mitigate price surge risks, the synthetic graphite industry will be incentivized to consider different coke feedstocks to substitute for needle coke .

Technology Substitution: The Rise of Mid-Sulfur Petroleum Coke

History often repeats itself. During the 2022 coke price surge, Chinese producers began exploring alternative paths—attempting to substitute mid-sulfur petroleum coke for low-sulfur grades to control costs .

"We witnessed a coke price jump trend between 2021 and 2022 driven by robust NEV demand. Needle coke and low-sulfur petroleum coke prices increased by 100% to RMB 11,000/tonne and 191% to RMB 7,400/tonne respectively from early 2021 to July 2022," recalled a China petroleum coke trader .

High prices drove substitution momentum. Sponge coke—typically used in aluminum industry with sulfur content up to 3-3.5%—came into the view of anode material companies due to its porous structure and lower price. Yury Burenko, Trading Director at DYM Resources, noted that sponge coke shares similar low thermal expansion coefficient and high thermal shock resistance with needle coke but trades at lower prices, making it economically attractive to the anode industry .

A Chinese anode producer source revealed: "While there is still some needle coke consumption in China's lithium battery sector, its share could decrease due to high costs, while regular petroleum coke usage will increase in the future." 

Supply Concerns: Low-Sulfur Coke Capacity Constraints

The substitution path isn't without obstacles. Low-sulfur petroleum coke supply also faces challenges.

Since petroleum coke is a refining byproduct, its output mainly depends on refinery operations . Newly increased petroleum coke capacity in China may be dominated by large refining projects focusing on processing high-sulfur crude—unsuitable for anode production .

"Internationally, petroleum coke mainly consists of high-sulfur products for the aluminum industry," said a China petroleum coke trader. "China's low-sulfur petroleum coke supply dynamics mean anode producers need to diversify raw material sources by increasing mid-sulfur petroleum coke consumption." 

This means that the anode material industry must not only cope with short-term price fluctuations but also with long-term structural constraints on raw material supply.

Salt Lake vs. Ore: Historic Cost Curve Convergence

Middle East conflict has not only reshaped coke supply-demand dynamics but ia also reshaping the entire lithium battery industry's cost curve.

Galaxy Futures research team points out that the Middle East geopolitical conflict primarily affects commodities through risk aversion and energy cost expectations. For lithium, the energy-intensive ore-to-lithium process, which relies on oil and gas, is expected to face the most significant pressure, while the energy-efficient brine lithium extraction process has a relative advantage.

Data shows that from late February to early March, the stock prices of companies involved in brine lithium extraction remained stable, while some ore-to-lithium companies experienced significant selling pressure. Markets are meticulously calculating each company's cost curve—whose mines are overseas, whose energy consumption is high, whose profits might be directly affected by Middle East conflict .

UBS lithium team commented in a March 1 report: "This conflict has made the market realize for the first time: one of the lifelines of the lithium industry is energy." 

Policy and Corporate Responses: Seeking New Balance

Facing structural raw material supply challenges, companies are taking action.

Integrated development has become a consensus. Xinde New Materials has extended its raw material supply upstream to ethylene tar through its Dalian base, while Chengdu Yutai leverages its cost and location advantages. In March 2026, the company acquired a 51% stake in Fujian Zhongtan through equity transfer and capital increase, establishing an ethylene tar supply relationship with Fujian Gulei Petrochemical, further reducing raw material transportation costs.

Import sources are diversifying. Although high-end needle coke still relies on imports, China's oil-based and coal-based needle coke production capacity is expanding. Market participants are also paying more attention to the progress and possibilities of domestic substitution.

Future Outlook: Technology Routes Toward Diversification

GGII analysis suggests that future lithium battery anode prices and production trends require close monitoring of raw material supply, downstream demand recovery, and geopolitical conflict evolution .

In the medium to long term, the impact of oil price fluctuations on lithium-ion battery anodes will drive the industry towards technological diversification—the high-end market will maintain its needle coke route, while the mid-to-low-end market will accelerate its transition to alternative raw materials such as medium-sulfur petroleum coke. Furthermore, the industrialization of next-generation battery technologies, such as silicon-based anodes and solid-state batteries, may unexpectedly accelerate under cost pressures.

For anode manufacturers, ensuring production security during periods of raw material shortages and accurately positioning themselves amidst technological shifts will be crucial for navigating economic cycles.