2023-10-12 15:33:53
After China announced that it would limit exports of gallium and germanium, its overseas shipments dropped to zero. The sanctions were a warning sign that the country had a powerful weapon it might use in an unfolding trade war — but might it really be? The United States appeared to have cut the tree from under itself by starting to restrict sales of chips and the equipment needed to make them to China. China has almost a monopoly on the production of gallium and germanium. And while there are alternatives for the United States and its allies, building a new supply chain would require an investment of more than $20 billion, says Marina Zhang, an associate professor at the University of Technology in Sydney. The gallium and germanium used in the production of semiconductors, solar panels and rocket systems do not occur in nature by themselves, they are usually produced as a by-product of the mining of other metals. According to Ewa Manthey, ING Group’s commodity market strategist, the processing of the mentioned materials is extremely expensive, time- and energy-consuming. And China dominates the market not because the two metals are rare, but because it can keep production costs low. Have they found a way out of China’s rule? Between 2013 and 2016, along with Kazakhstan and Germany, Hungary also stopped the primary production of gallium. However, Russia, Japan and Korea produced 1.8% of global gallium production in 2022, with Canada leading the way in germanium production. So if China tries to choke off supply, global mining companies might step in to sell. In fact, according to Gregory Allen, director of the CSIS Wadhwani Center for AI & Advanced Technologies, some have already indicated their intention to do so. In August, China completely stopped exporting raw materials, but in September, the Ministry of Commerce approved some licenses for Chinese companies. By the way, the materials became more expensive following the regulation, since June the price of gallium has risen by 17%, and the value of germanium by 3%. However, even though these two raw materials are significantly more expensive to produce, over time the market and supply chains may adjust to the sanctions, which might reduce China’s dominance. Source
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