China is grappling with a growing surplus of two strategic metals as the country prepares to impose export controls on gallium and germanium from August 1. These metals are crucial components used in semiconductors, satellite imagery sensors, light-emitting diodes (LEDs), and other technological applications. The move by China’s Ministry of Commerce is seen as an escalation in the ongoing tech battle with the United States. While overseas prices of these minerals have surged, domestic prices are under pressure due to the surplus.

Initial Price Increase but Resistance from Buyers

Following the announcement, producers initially raised their offer prices for gallium by up to 20% and for germanium by 4%. However, some sellers remain reluctant to compromise on prices, anticipating further increases in July. Meanwhile, buyers have resisted attempts to raise prices. Gallium prices in China have already dropped by 12% this year due to the country’s slowing economy.

China’s Dominance and Surplus

China is responsible for approximately 85% of global gallium consumption and significantly expanded its production capacity to nearly 1,000 metric tons last year. Consequently, China has accumulated a surplus of 25 metric tons that it has been attempting to ship abroad. This surplus has put downward pressure on prices. Antaike, a state-backed research firm, provided these figures.

Impact on the Market

“The market would likely have been bearish without these changes,” according to Theo Ruas, Global Sales Manager at Indium Corporation, a US-based refiner of raw materials for the electronics sector. After Monday’s announcement, prices of gallium with 99.99% purity in China rose by 6%, reaching 1,775 yuan per kg. However, they have remained unchanged since then. Chinese germanium ingot prices have only increased by 1% to 7,250 yuan per kg.

Rapid Price Increases Overseas

While domestic prices have been slow to react, overseas price offers have risen more significantly. Market participants fear that China may use the permitting system to restrict shipments, leading to the price jump. However, industry experts, such as Willis Thomas, a consultant at London-based consultancy CRU, believe that the price surge will likely be short-lived. Thomas also noted that both metals can be produced from by-product sources, but economic factors have limited the recovery in production so far.

Licenses and Uncertainty

Exporters will now need to obtain a license to ship these metals overseas. The license application process requires details of end-use applications. The Chinese government has provided limited information on how this process will work. As of now, no applications have been submitted, according to the Chinese Ministry of Commerce. The ministry recently held a meeting with producers to discuss the new export controls. It clarified that export control does not mean export prohibition and that compliance with regulations will lead to permit issuance. The spokesperson emphasized that China’s export controls do not target any particular country.

China’s Dominance in Production

China is a major producer of these metals, accounting for approximately 60% of the world’s germanium and over 90% of the world’s gallium. The export restrictions will likely have a significant impact on global supply and may disrupt supply chains in industries reliant on these materials.

Conclusion

China’s decision to impose export controls on gallium and germanium has led to a surplus of these strategic metals domestically. While overseas prices have risen sharply, domestic prices remain under pressure due to the surplus. The duration and impact of the price increase will depend on the permitting system’s stringency and how the market adapts to the new restrictions. The move highlights China’s dominance in the production of these metals and its role as a major player in global supply chains for high-tech industries.

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