Daily Management Review

Chinese Export Restrictions On Chip Metal Are "A Wake-Up Call" For Other Nations To Diversify Their Supply Chains


Chinese Export Restrictions On Chip Metal Are "A Wake-Up Call" For Other Nations To Diversify Their Supply Chains
Some nations may decide to diversify their supply chains beyond China as a result of China's restrictions on the export of germanium and gallium as metals.
“This could be a wake-up call for some [countries] to gradually build up production elsewhere,” Stewart Randall of Shanghai-based consultancy Intralink told CNBC.
“Whereas if China never did anything, most of the world would be perfectly happy to continue relying on China,” said Randall.
In what is viewed as a message to Europe and the United States in a tech war over cutting-edge chips, China's commerce ministry stated last week that it is banning the shipments of two metals — gallium and germanium — essential to the fabrication of semiconductors starting August 1.
According to data from the Critical Raw Materials Alliance, an industry group, China produces 60% of the world's germanium and 80% of its gallium.
We're likely to see [export limits] persist, and they'll probably have an impact on other commodities, such rare earths, whose production is again mostly under Chinese control (more than 85%).
Concern was expressed by both the U.S. and the Europe Commission regarding China's proposed limits.
“China stopping the exports of the metals is actually a warning. It reminds the European countries that they need to have their own supply chains,” Brady Wang, associate director of Counterpoint Research, said.
Defence Metals Corp. President Luisa Moreno anticipates that China will continue to impose export restrictions on metals, possibly including rare earths.
For high-tech consumer goods like cellphones and military hardware like radar systems, rare earths are necessary. The 17 elements known as rare earths are made up of lanthanides, scandium, and yttrium.
“We are likely to continue to see [export restrictions] and it will likely affect other materials like rare earths, which again, China controls more than 85% of production,” Moreno said.  
Due to a territorial dispute, China stopped exporting rare earths to Japan in 2010. Additionally, China threatened to halt rare earth exports to the United States in 2019.
″[The impact from the metals curbs] is not big in the short term, but if the Chinese imposes [curbs on other critical materials], that will be a longer-term problem,” said Counterpoint’s Wang.
“China also has to be careful because blocking exports could hurt Chinese companies as well as they would lose their foreign customers,” said Intralink’s Randall.
A significant material source claimed that companies are getting ready to begin producing gallium. The two metals that China will soon restrict access to are not produced naturally; rather, they are usually made through the refining of other metals.
“We are getting lots of calls from our customers, there’s a lot of activity out there. And we’re engaging with the market to make sure we can secure supply,” Ross Berntson, president and chief operating officer of Indium Corporation, said on CNBC’s “Squawk Box Asia” Wednesday.
Global electronics and chip companies depend on indium for essential elements like gallium and germanium.
“There’s approximately 10 factories that could turn on production for gallium right now ... and if we can get those production units turned on, we will have ample gallium in other geographies besides China,” said Berntson.
Even though China is the world's top producer of germanium and gallium, it is not the only one.
According to an Indian government study from 2021, gallium is also produced in Russia, Ukraine, Japan, and South Korea. Gallium is recycled from fresh scrap in Canada, Germany, Japan, Slovakia, and the United States.
According to information from the U.S. Geological Survey, Belgium, Germany, and Russia can manufacture germanium in the interim. The United States may recycle both fresh and used scrap for germanium.
“Metals such as gallium and germanium are not unique metals. China is a major supplier of these metals and this helps to keep the price of the metals down,” said John Strand of telecomms consultancy Strand Consult.
“My perspective is that even if they crack down vigorously here, it’s really going to be more of a price impact than an overall supply impact,” Clete Willems, partner at law firm Akin Gump Strauss Hauer & Feld, said on CNBC’s “Squawk Box Asia” on Tuesday.