China to Limit Exports of Gallium and Germanium

Effective from August 1, export restrictions will be imposed on both gallium and germanium, along with their compounds.

China, a significant player in the production and processing of these materials, is expected to trigger an increase in production from other countries and regions such as the U.S., EU, Canada, Japan, Ukraine, South Korea, and Russia in the long term to meet the growing demand from the chip and communication sector.

As these restrictions don't constitute a direct export tariff or ban targeted at specific countries or end-users as of now, the exact level of disruption and impact remains uncertain. More clarity will emerge post the implementation on August 1. Given that China accounts for nearly two-thirds of the global germanium supply, these measures are expected to exert upward pressure on prices in the near term.

Category: Germanium

Dependency & Overview

In 2022, China was the primary global producer and exporter of germanium. The exports of germanium from China (Code 8112.99.10) decreased by 7% in the first eight months of the year.

Last year, China exported 43.7 metric tons of unwrought and wrought germanium to major destinations including Germany, Hong Kong, Japan, Belgium, the United States, and Russia.

Secondary supply of germanium is also a viable option with nearly 30% of the global supply produced from recycled materials.

Top germanium producers in China include Yunnan Lincang Xinyuan Germanium Industrial Co., Ltd. and Yunnan Chihong Zinc and Germanium Co., Ltd. The announcement of the export restrictions saw the shares of these companies closing higher, with a combined market cap increase of $350 million.

Outlook & Impact

Exporters will need to apply for licenses from the ministry to export germanium out of the country. As this does not constitute a direct export tariff or ban on export to specific countries or end-users, the exact level of disruption remains uncertain, with more clarity anticipated after the implementation on August 1.

China holds nearly 68% of the global share in supply, and any export restrictions are likely to cause upward pressure on global prices.

This measure serves as a wake-up call for other regions to decrease their reliance on China. In the long term, regions such as the U.S., EU, Canada, and Japan may increase their processing and output to cater to the rising demand for these critical materials in communication and semiconductor technology.

The availability from Russia and Ukraine currently is volatile due to the disruptions caused by the war that started in 2022 and the sanctions Russia faces from western nations.

Precedent, End Use, and Substitute

Precedent: Similarities can be found in China’s export quota on rare earths in 2010 following a dispute with Japan. China cited environmental concerns as the key reason for this move. The prices of rare earths rose as a result, but this also led to an increase in production outside China, resulting in a 37% loss of their market share a decade later.

Substitute: Although cheaper alternatives for germanium exist in specific applications, these usually result in a loss in performance and are not preferred. In infrared optics applications, for example, tellurium, silicon, selenium, arsenic, fluorine, and zinc (selenide and sulfide) can be used as substitutes.

Category: Gallium

The exact level of disruption and impact remains uncertain since these restrictions don't constitute a direct export tariff or ban targeted at specific countries or end-users as of now. More clarity is expected after the implementation on August 1. Given China's near-monopoly in this market, these measures are likely to exert immediate upward pressure on prices.

Dependency

Primary gallium production in 2022, increased by 27% from the previous year, from 434,000 kilograms to 550,000 kilograms.

China is the principal producer of gallium. Other countries like Japan, South Korea, Russia, and Ukraine also produce gallium but in significantly smaller quantities. The United Kingdom ceased production of high-purity gallium in 2018. However, gallium continues to be recovered from new scrap in Canada, China, Japan, Slovakia, and the United States.

Overall, China exported 94 metric tons of gallium in 2022, an increase of 25% on a yearly basis.

Outlook and Impact

Exporters will need to apply for licenses from the ministry to export gallium out of the country. The exact level of disruption is still uncertain as it is not a direct export tariff or ban on export to specific countries or end users, with more clarity expected after the implementation on August 1st.

China accounts for nearly 98% of the global share in supply, and any export restrictions will likely lead to upward pressure on global prices.

In the long term, this provides an opportunity for nations to diversify their supply chains for critical raw materials and reduce their dependency on China. Countries such as South Korea, Canada, Japan, and the U.S. can increase their processing and output to cater to the rising demand. However, these countries will still lag China's supply capability in the near future, and it will take several years before China’s market share reduces considerably from current levels.

The availability from Russia and Ukraine at present is unpredictable due to the disruptions caused by the war and sanctions Russia faces from the western nations.

End Use and Substitute

Substitute: Although some cheaper alternatives for gallium exist for specific applications, these are typically less efficient. For instance, in semiconductors, silicon or silicon-based substrates are the main substitutes. However, silicon's lower electron mobility makes it significantly less efficient, limiting its application range.