China’s recent move to impose export restrictions on certain metals commonly used in semiconductors, electric vehicles, and high-tech industries has escalated tensions with the United States and raised the potential for disruptions in global supply chains. The sudden announcement has prompted companies to swiftly respond, with a U.S. semiconductor wafer manufacturer already seeking export permits to reassure investors. A Chinese germanium producer reported a surge in inquiries from abroad and a significant overnight increase in prices. The Chinese Ministry of Commerce stated that starting from August 1, it would control the exports of eight gallium products and six germanium products in order to safeguard its national security and interests. Analysts interpreted this move as a retaliatory response to Washington’s intensifying efforts to limit China’s technological advancements.
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China’s Dominance in Minor Metals Market
“Gallium and germanium are just a couple of the minor metals that are so crucial for a range of tech products, and China is the leading producer of most of these metals. It is unrealistic to suggest that another country can replace China in the short or even medium term,” remarked Peter Arkell, Chairman of the Global Mining Association of China. Gallium, germanium, and other minor metals are extensively used in wide-bandgap semiconductors for communication equipment, solar panels, and electric vehicles. China holds a dominant position in the production of gallium and germanium. In 2022, the top importers of China’s gallium products were Japan, Germany, and the Netherlands, according to customs data cited by the news website Caixin. The leading importers of germanium products were Japan, France, Germany, and the United States.
Export Permits and Concerns of Disruption
U.S.-based semiconductor wafer manufacturer AXT Inc, which operates manufacturing facilities in China, promptly announced that its Chinese subsidiary, Tongmei, would immediately apply for permits to continue exporting gallium and germanium substrate products from China. AXT’s CEO, Morris Young, reassured stakeholders, stating that they are actively pursuing the necessary permits and working to minimize any potential disruptions to their customers. Meanwhile, a manager at a Chinese germanium producer revealed that the company had received numerous queries from buyers in Europe, Japan, and the United States seeking to stockpile the product before the export controls take effect. These buyers anticipate that it may take up to two months to obtain export permits. The manager also noted a significant increase in domestic and export market prices, reaching 10,000 yuan ($1,380) per kg and over $1,500 per kg, respectively.
Surprise Timing and Industry Response
Although the industry had anticipated some export controls on these metals, the timing of the announcement caught many by surprise. The unnamed manager at the Chinese germanium producer mentioned that some downstream users had already secured long-term sales contracts for the next two to three years. These users are concerned about a potential spike in raw material prices, which would raise their production costs and potentially lead to losses. Due to the sensitivity of the matter, the manager preferred not to be named.
Market Reaction and Escalation Risk
Following the news, shares in certain metal producers experienced gains. Yunnan Lincang Xinyuan Germanium Industry Co saw a 10% surge, hitting the daily upper limit, while Yunnan Chihong Zinc & Germanium Co climbed 7%.
China’s export controls come at a time when the United States is contemplating additional restrictions on the shipment of high-tech microchips to China, building upon previous measures in recent years. The U.S. and the Netherlands are also expected to further limit sales of chipmaking equipment to Chinese chipmakers this summer, aiming to prevent their technology from being utilized by China’s military. China had previously responded to U.S. pressure on chips by banning certain domestic sectors from purchasing products from U.S. memory chipmaker Micron in May.
Analysts from Jefferies perceive China’s export controls as the country’s second and significantly larger countermeasure in the U.S.-China tech war, following the Micron ban. They also view it as a likely response to a potential U.S. tightening of an AI chip ban. The analysts warned of a potential rapid escalation of tensions between the United States and China, stating that if this action fails to alter the dynamics between the two countries, further export controls on rare earth metals should be anticipated.
