Companies in various industries, including semiconductors and electric vehicles, found themselves scrambling to secure supplies following China’s recent export restrictions of two metals commonly used in their production.
The sudden announcement, which takes effect on August 1, has further escalated the ongoing trade war between China and the United States, fueling concerns that limitations on rare earth exports may also be on the horizon.
The move, attributed by the Chinese commerce ministry to safeguarding national security, is widely viewed as a response to the United States’ increasing efforts to curb China’s technological advancements. Peter Arkell, Chairman of the Global Mining Association of China, commented, “China has hit the American trade restrictions where it hurts.”
Coinciding with U.S. Secretary of Treasury Janet Yellen’s upcoming visit to Beijing, the timing of the export controls is seen as a deliberate message to the Biden administration. Paul Triolo, Senior Vice President for China at strategy firm Albright Stonebridge, suggests that the restrictions will likely target companies in the semiconductor and defense sectors, granting China more leverage in negotiations.
Triolo adds, “It’s clearly timed to send a not-so-subtle message to the Biden administration that China holds significant cards when it comes to inputs to the semiconductor, aerospace, and automobile industries, and can and will increasingly be willing to inflict pain on U.S. companies.”
The European Commission expressed concerns, while Germany’s Economy Minister Robert Habeck cautioned against expanding controls to encompass materials such as lithium, deeming it “problematic.” The Dutch government emphasized that the impact of these new regulations would depend on their implementation.
As the news broke, a U.S. semiconductor wafer manufacturer confirmed its application for export permits, while a Chinese germanium producer reported a surge in buyer inquiries due to escalating prices. The gallium and germanium products targeted by the restrictions are also vital in other high-tech industries.
Worries within the metals industry are now focused on the possibility of China imposing further restrictions on rare earth exports. Such concerns stem from a previous dispute with Japan 12 years ago when China curbed rare earth shipments. China, being the world’s largest producer of rare earths, holds significant sway over the electric vehicle and military equipment sectors, where these metals are critical.
“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,” noted Arkell. “It is a fantasy to suggest that another country can replace China in the short or even medium term.”
China currently dominates global gallium and germanium production. In 2022, Japan, Germany, and the Netherlands were the leading importers of China’s gallium products, while Japan, France, Germany, and the United States were the primary importers of germanium products, according to customs data cited by news website Caixin.
The Chinese commerce ministry plans to meet with major metal producers on Thursday to discuss the export restrictions, as confirmed by four sources familiar with the matter.
In anticipation of potential production outside of China, Nyrstar announced its exploration of germanium and gallium projects in Australia, Europe, and the United States.
Meanwhile, Teck Resources, North America’s largest germanium producer, experienced a brief 1% surge in early trading, and 5N Plus Inc, a Canada-based specialty semiconductors and performance materials company, saw an 8.9% rally in its shares. Neo Performance Materials, involved in gallium recycling and the manufacturing of gallium trichloride, witnessed a 5.73% increase.
CEO of Neo Performance, Constantine Karayannopoulos, acknowledged the challenges of meeting market demand without Chinese gallium supply but suggested that workarounds could be possible with the right policy incentives.
He commented, “This was probably the least consequential measure China could take since it does not hurt as much as other options could. On the other hand, it could give a significant impetus to North American and European governments, along with producers and consumers of high-purity gallium outside of China, to seriously consider establishing supply chain alternatives.”
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