In response to US President Joe Biden's administration's consideration of a broader ban on semiconductor chips, China announced export restrictions on gallium and germanium, which are key to manufacturing electronics and semiconductors, as the technical battle with America and Europe heats up.
The announcement resulted in a 27% rise in global gallium prices and prompted traders to scramble to buy the metal in anticipation of export controls that will take effect from August.
Germanium and gallium are metals that do not exist naturally, but are usually formed as a by-product of other metal refineries.
Germanium is a silver-white metal formed as a by-product of zinc production, while gallium (silver metal) is a by-product for processing bauxite and zinc ores.
Germanium has several uses, including solar energy products and optical fibers, and because it is transparent to infrared radiation it can be used in military applications, such as night vision goggles, while gallium is used to manufacture the chemical compound of gallium arsenide, which can make radio frequency chips for mobile phones and satellite communications, and is a basic material in semiconductors.
The United States is looking to diversify sources and boost domestic mining for these minerals, while China's control of other major minerals suggests it will have serious repercussions on trade relations between the two countries.
The timing of Beijing's announcement of the new restrictions came days before US Treasury Secretary Janet Yellen's visit to China, where Chinese officials appear to be playing a complicated game with the Biden administration because their dominance of rare earth metal production and the West's lack of them will be the focus of talks with Yellen on a future U.S. ban on chips and semiconductor equipment critical to China's economic growth.
Louis Navillier, founder of Navillier & Associates, said China does not welcome the news that the Biden administration is considering a broader ban on semiconductor chips and has decided to ban the export of gallium and germanium, which are used in semiconductors, fifth-generation base plants and solar panels. Although the United States and its allies rely on China for these important metals, China needs Western technology such as lithography machines to produce high-performance chips.
Global gallium prices rose 27% last week, with traders who spoke to Bloomberg saying the gallium market is well supplied, but export restrictions that will come into effect next month have prompted buyers to rush to buy the metal. Fast Markets data showed that gallium prices jumped $43 over the past week to $326 per kilogram.
According to the website, starting from the first of next August, exporters must apply for licenses from the Ministry of Commerce to ship metals abroad. Colin Hamilton, managing director of commodity research at Montreal Capital Markets Bank, says the restrictions are likely to spur Western countries' efforts to seek new supplies for both metals elsewhere.
"This is yet another example of how industrial raw materials are growing strategically positioned in global markets and are becoming crucial in political decision-making," Hamilton wrote in a note last week.
Data from the U.S. Geological Survey show that the United States imported an estimated 14,2022 kilograms of germanium in 30 while consuming an estimated 14,18 kilograms; in the same year, gallium imports were <>,<> kilograms while consumption was about <>,<> kilograms.
The United States will stock up on these minerals because they will diversify their sources away from Asia, where the Biden administration is seeking to increase domestic mining and refining rare earth metals. According to Bernard Dahdah, an analyst at Natixis, China's move away from its enormous impact was the first warning shot, noting that "China controls other minerals through which it can inflict more serious damage on many countries," while the US Department of Defense announced that it would invoke the Defense Production Act to enhance the mining capacity and domestic processing of the mines.