China to ban chipmaking metal exports
Metal Tech News - July 4, 2023
Last updated 7/6/2023 at 10:12am
Going back to its 2010 rare earths playbook, China will ban gallium and germanium exports without state approval.
Reminiscent of export restrictions that sent the price of rare earth elements through the roof in 2010, China has announced that it is placing state-controlled restrictions on the export of two technology metals vital to chipmaking – gallium and germanium.
On July 2, China's Ministry of Commerce posted notices that the exports of eight gallium and six germanium products will require state approval after Aug. 1. The ministry cited a need to "safeguard national security interests" as the reason for the government lockdown on these tech metals and is convening industry stakeholders along China's gallium and germanium supply chains to discuss the upcoming export restrictions.
While the markets for gallium and germanium are minuscule in comparison to the economies of the United States and China, these metals have tremendous leverage due to their uses in high-tech and green energy products.
Gallium serves as a primary ingredient in semiconductors used in next-generation smartphones, telecommunication networks, light-emitting diodes (LEDs), thin-film solar cells, and medical devices.
More details on gallium and its uses can be read at Gallium may be more critical than realized in the Critical Minerals Alliances 2022 magazine published by Data Mine North.
Germanium, an intrinsic semiconductor with superior optical qualities, is a powerful ingredient in fiber optics, night vision devices, triple-layered solar panels, and transistors for classic and quantum computers.
More details on gallium and its uses can be read at The quantum states of germanium demand in the Critical Minerals Alliances 2021 magazine published by Data Mine North.
Various semiconductor products made from both gallium and germanium are used to manufacture the computer chips that are at the center of the global economy due to their use in nearly every electronic device. The dearth of new vehicles for sale on showroom floors during and after the COVID pandemic is an example of how a lack of these computer chips can stall the global economy.
"China has hit the American trade restrictions where it hurts," Peter Arkell, chairman of the Global Mining Association of China, said of the coming gallium and germanium export restrictions.
CHIPS Act oversight?
To avoid future disruptions of supplies of the semiconductor chips critical to U.S. manufacturing, supply chains, and national security, President Biden signed the CHIPS Act into law in 2022. This law allocated $52.7 billion for American semiconductor "research and development, science and technology, and the workforce of the future to keep the United States the leader in the industries of tomorrow, including nanotechnology, clean energy, quantum computing, and artificial intelligence."
This includes $39 million in chipmaking incentives in the U.S. but restricts companies that take advantage of these subsidies from doing any significant transactions with China or "any other foreign country of concern" for 10 years.
The act, however, does not address the need for semiconductor raw materials like gallium and germanium. It is believed that the Chinese limitations on the export of these metals is in retaliation to the CHIPS Act, as well as further restrictions on the shipment of microchips to China being considered by Washington lawmakers.
The U.S. currently relies on imports for 100% for its supply of gallium and more than 50% of its germanium.
During 2022, China produced 98% of the global supply of gallium – Russia came in second at around 1%. The germanium supply chains are a bit more opaque, but the U.S. Geological Survey calculates that 54% of U.S. germanium imports during 2022 came from China, with most of the rest coming from Germany, Belgium, and Russia.
"Gallium and germanium are just a couple of the minor metals that are so important for the range of tech products and China is the dominant producer of most of these metals," said Arkell. "It is a fantasy to suggest that another country can replace China in the short or even medium term."
Typically, both of these minor metals are recovered as byproducts of base metals like zinc and aluminum.
Germanium, which is already produced as a byproduct of zinc refining in the U.S. and Canada, will be the easiest to replace.
Teck Resources Ltd.'s Trail refinery in British Columbia, which processes concentrates from the company's Red Dog zinc mine in Alaska, is a globally significant producer of germanium. The Middle Tennessee mines and refinery in the eastern U.S. also produce germanium as a zinc byproduct.
With China and Russia accounting for roughly 99% of global supplies of gallium, coming up with alternative sources to replace supply disruptions expected to begin in less than a month is a tall order.
Chinese REE playbook revisited
Given gallium and germanium's outsized impacts on the tech sector, and by extension the global economy, it is expected that mining companies and governments will be scrambling to diversify the supply of these semiconductor metals away from China.
This anticipated push to break into small markets dominated by a country that has direct control over the spigot, however, is wrought with challenges.
A look back at China's 2010 rare earths playbook offers some insight into the difficulties associated with trying to break into the markets for Sino-controlled critical minerals.
When China turned off the rare earth spigot over a dispute with Japan in 2010, the prices for this suite of 15 tech elements skyrocketed.
For example, the price for a kilogram of the rare earth element europium oxide rose from US$475 per kilogram in 2008 to a peak of US$3,800 in 2011.
This rise in rare earth prices made the economics of mining outside of China compelling, and companies around the globe quickly began advancing REE projects.
A couple of years later, however, China dumped large quantities of rare earths onto global markets, which sent prices tumbling below 2009 levels, and put numerous rare earths projects and companies out of commission.
Molycorp, an American company that set out to reopen the Mountain Pass rare earths mine in California's Mojave Desert, was among the victims of the price fluctuations caused by the ebb and flow of China REE exports.
Mountain Pass rose as the dominant supplier of rare earths in the 1960s, a position the mine held until Chinese competition and the higher costs to mine for rare earths under U.S. environmental regulations forced the operation to wind down in 2002.
Championed as the company that would reopen Mountain Pass and break America's dependence on China for rare earths, Molycorp stock rocketed from around US$10 per share in 2009 to US$74 a share one year later. By 2015, however, the price for a share of this American rare earth miner had plummeted to less than US10 cents, and the company was forced to file for Chapter 11 Bankruptcy.
The rise and fall of Molycorp was a common theme for REE-focused companies around the globe. For China, this provided an opportunity to acquire distressed rare earth assets outside of its borders.
A Chinese state-owned mining company made a bid to buy a controlling interest in Lynas Corp., which mines rare earths in Australia and operates one of the only REE processing facilities outside of China. Australia's Foreign Investment Review Board, however, stepped in and stopped the deal, citing concerns that the purchase could result in restricted supplies to non-Chinese buyers.
China-based Shenghe Resources Holding Co. did nab a minority holding in MP Materials, a company that arose from the ashes of Molycorp and resumed operations at Mountain Pass in 2019.
While the 2010 rare earths strategy is likely not the only play in China's book, it was effective and could prove to be tough to defense when it comes to establishing gallium and germanium supply chains outside of the Middle Kingdom.