The United States and the West in general have begun to adopt a much more interventionist policy in their companies’ relations with China. Trade is hampered by tariffs and other measures. In addition, advanced countries, led by the United States, are trying to reduce the transfer of technology that Beijing can use to complete its (economic and military) circumvention of the West. Even if advanced countries have begun to act, China is already a giant with a relatively high level of development (some already consider it an advanced country) and has several leading sectors at the world level. This comfortable position allows China plays its cards with guaranteesFor example, Beijing’s controls on exports of key materials for semiconductor production, known as the oil of the 21st century, are a major blow to the West.
Chinese controls on exports of critical semiconductor materials are disrupting global supply chains and fueling fears of shortages. Western production of advanced chips and military equipment. Beijing’s restrictions on shipments of germanium and gallium (two chemical elements), used in semiconductor applications and in components of military and communications equipment, are stifling European buyers. This national policy is consistent with others recently shown in which Chinese state-owned companies have begun hoarding raw materials for no clear reason.
These restrictions have caused mineral prices in Europe to almost double over the past year, according to publications from the Financial TimeFor example, germanium prices have jumped 52% since early June to $2,280 per kilogram in China, according to data provider Argus.
China introduced the restrictions last year, which it says protect its “national security and interests,” in response to U.S. controls and restrictions on sales of chips and advanced equipment for manufacturing in China. Germanium and gallium are minerals essential to the production of a variety of goods, including semiconductors, solar panels and electric vehicles.
Germanium, a silvery-white metal, is used in the manufacture of optical fibers to transfer data and information, as well as in high-speed chips and infrared radiation. It can be used in military applications, including night vision goggles.
Gallium, primarily in the form of gallium nitride and gallium arsenide, is used to create integrated circuit chips and optoelectronic devices, such as laser diodes, LEDs, and solar cells. Gallium-based semiconductors are used in a variety of technologies, such as computers, phones, and even military applications. In the electric vehicle industry, the greater electron mobility in gallium nitride semiconductors makes them more efficient and improves thermal management, resulting in less expensive cooling systems. Additionally, gallium nitride is useful for reducing the mass of electric vehicles. Germanium is primarily used in multijunction solar cells, infrared optics, and optical fibers, as explained in a presentation to the U.S. International Trade Commission.
On July 3, 2023, China’s Ministry of Commerce announced new export controls on germanium and gallium, highlighting the importance of these minerals in the international market. The two minerals have been included in the 50 mineral products of the 2022 list of critical minerals created by the United States Geological Survey (USGS).
The Chinese measures came days after the Netherlands announced plans to implement the latest round of controls aimed at limiting the sale of high-end chipmaking equipment abroad. The move was aimed at preventing ASML, the Dutch company that produces the world’s most advanced semiconductor manufacturing tools, from reaching Chinese companies.
China stops selling germanium
The situation is getting more dire: “The Chinese aren’t even offering germanium overseas right now,” says Terence Bell, director of Strategic Metal Investments, a Vancouver-based metals trader.
From the agency Reuters explained in a report published in July that increasingly traders Western-linked countries (such as South Korea and Japan) are knocking on China’s doors to try to acquire these materials. This growing interest, combined with supply restrictions, is driving up prices intensely.
Matthew Blackwood and Catherine DeFilippo, members of the U.S. International Trade Commission’s Office of Operations, explained in a paper published in March that “germanium’s ability to minimize signal loss over long distances in optical fiber has become increasingly important given the growing demand for high-performance data networks,” they explained.
China dominates the market
The fact is that “China is the leading producer of gallium and germanium, producing about 60% of gallium and nearly 90% of germanium,” according to these experts. This suggests that if China wants to turn off the tap, Europe and the United States are going to have a serious problem.
For example, between 2018 and 2021, China supplied 54% of U.S. imports of germanium and 53% of gallium. According to the USGS, the United States’ net reliance on imports as a percentage of reported consumption of germanium and gallium in 2022 was over 50 and 100, respectively. In addition, from 2021 to 2022, the overall customs value of gallium imports into the United States increased by nearly $1.7 million, an increase of 997.5%, according to data published by the U.S. International Trade Commission.
“These metals are not found in nature. They are both a by-product of other metal refineries. Gallium is a by-product of the processing of bauxite and zinc ores, while germanium is formed as a by-product of zinc production,” says Ewa Manthey, commodities strategist at ING. “Beijing’s decision highlights China’s dominant position in global gallium and germanium production. There is no major global shortage of gallium or germanium. China dominates the production of these two metals not because they are rare, but because it has been able to keep its production costs relatively low and manufacturers from other countries have not been able to match the country’s competitive costs,” the expert says.
Gallium and germanium can be expensive, technically complex, energy-intensive, and polluting, and very few facilities outside China can extract them. While China has increased its share of production, other countries have reduced theirs, including Germany and Kazakhstan. Now the world is heavily dependent on China to supply these elements and continue to produce semiconductors.
“Higher prices will increase competition by making production more competitive in countries like Japan, Canada and the United States.”which in turn will reduce China’s dominance in both markets. It will take time to build processing plants, but over time markets and supply chains will adapt,” says ING’s Manthey.
