China Tightens the Screws on Key Metals Export
Following China's abrupt decision to limit exports of gallium and germanium - two metals vital to semiconductor and electric vehicle manufacturing - companies worldwide are scrambling to secure their supply chains. These restrictions, which come into effect on August 1st, have intensified the ongoing trade war with the United States and could further destabilize global supply chains. This move is interpreted by analysts as Beijing's counter to Washington's mounting efforts to hinder China's tech advancements.
Global Response to China's Export Curbs
This bold step by China has elicited a global response. The European Commission has expressed its concern, while Robert Habeck, Germany's Economy Minister, warned that extending these controls to other materials like lithium could create problems. On the corporate side, companies are quickly adjusting to the new reality; a US semiconductor wafer manufacturer has begun applying for export permits, and a China-based germanium producer has reported a surge in buyer inquiries.
Potential Impact on Rare Earth Exports
Industry insiders fear that China might tighten its grip on rare earth exports next, recalling how it previously curtailed shipments during a dispute with Japan 12 years ago. This is a significant concern as China is the world's largest producer of rare earth - a group of metals crucial for electric vehicles and military equipment. "It's unrealistic to think that another country can substitute China in producing these metals in the short or medium term," said Peter Arkell, chairman of the Global Mining Association of China.
The Fight for Gallium and Germanium
A closer look at global dependence on China's gallium and germanium production reveals a delicate balance. In 2022, Japan, Germany, and the Netherlands topped the list of gallium importers, while Japan, France, Germany, and the United States were the main importers of germanium products. With the Chinese commerce ministry meeting major producers of these metals soon to discuss export restrictions, companies outside of China, like Nyrstar, are exploring production projects in Australia, Europe, and the United States.
Stock Market Reacts to Export Restrictions
In the wake of China's announcement, stocks are making moves. Shares in Teck Resources, North America's largest germanium producer, saw a brief uptick. Meanwhile, semiconductor wafer maker AXT Inc and tech giant Intel are working to mitigate the impact of these restrictions by seeking export permits and reviewing the ministry's statement, respectively.
The Ripple Effect of Price Hikes
One consequence of these export restrictions is the potential price increase for gallium and germanium-based materials due to limited supply. Some semiconductor companies might be compelled to look for alternative materials. A Chinese germanium producer reported a surge in inquiries from buyers seeking to build stockpiles before August 1st, leading to a 2% increase in domestic prices and a 7% rise in export prices.
Risks of Escalating US-China Tensions
The U.S. and the Netherlands are likely to further tighten the sales of chipmaking equipment to China, as part of the broader effort to prevent their tech from being utilized by China's military. Beijing has retaliated previously, for instance, when it prohibited some domestic sectors from purchasing products from U.S. memory chipmaker Micron. The fear of escalating U.S.-China tension is real and substantial, with analysts suggesting that more export controls on rare earth should be expected if the current dynamics don't change.
