By Molly O’Connor, International Banker
According to Trading Economics, the price of germanium increased by 9,350 Chinese yuan renminbi per kilogram (CNY/kg), or 99.47 percent, from the beginning of 2024 to early November, as per trading on the contract for difference (CFD) financial instrument that tracks the benchmark market for this commodity. The popular economic-indicator website also recorded the price increase for gallium this year at 710 CNY/kg, or 37.08 percent. With China’s export controls on these sought-after minerals starting to bite, 2025 may see their price rallies extending further.
On July 3, 2023, China officially announced export restrictions on the two minerals, which are critical components in the manufacture of semiconductors, missile systems and solar cells, with controls coming into effect from August 2023—along with dozens of additional materials affected. Beijing’s controls were widely seen as responses to measures taken by the United States in October 2022, as well as by the Netherlands at the behest of its American ally, to limit China’s access to crucial equipment for making advanced semiconductors.
A metallic chemical element with high electrical and thermal conductivity, germanium’s most common use is as a semiconductor, specifically in transistors and integrated circuits for thousands of electronic applications. The lustrous, hard-brittle, greyish-white metalloid is also highly desired as an alloying agent and catalyst, in addition to being a crucial component in infrared spectroscopes, fibre-optic cables, solar panels and infrared detectors. Germanium ore is rarely found, with most germanium a byproduct of zinc production and coal fly ash.
A silvery-white metal comparable in appearance to aluminium, gallium is similarly used as an important component in semiconductors, solid-state devices (such as transistors) and bulbs. Gallium alloys are employed in medical thermometers as an alternative to mercury, while gallium arsenide is highly desired as a substitute for silicon wafers in various electronics applications and red LEDs (light-emitting diodes). Gallium is also produced as a byproduct of zinc production and when processing bauxite to make aluminium.
From a market perspective, China is home to a substantial bulk of global production of both minerals. According to the European industry association Critical Raw Materials Alliance (CRMA), around 60 percent of the world’s germanium is produced in the country, with the balance covered by Canada, Finland, Russia and the United States. The CRMA has attributed at least 80 percent of the world’s gallium to China, with Germany, Japan, the Republic of Korea, Russia and Ukraine making up much of the remaining global output. According to the United States Geological Survey (USGS), China also accounts for a whopping 98 percent of the world’s supply of raw, low-purity gallium production.
China’s export controls, which Beijing has claimed protects its “national security and interests”, have significantly impacted global supply chains as Western producers of advanced chips rely on germanium and gallium as crucial components in the semiconductor supply chain. The new controls require approvals for every shipment of the materials out of China, with reports noting that the process can take up to 80 days to complete. This makes longer-term supply contracts difficult to manage, given the heightened uncertainty.
Using Chinese customs data, the Financial Times (FT) calculated that China’s exports of germanium declined from 13,514 kg in the second half of 2023 to 12,410 kg in the first half of 2024. Gallium reportedly experienced a much sharper decline in exports following the implementation of Beijing’s controls, from 28,000 kg in the first half of 2023 to just 16,000 kg in the second half.
“The global supply chain for germanium and gallium is expected to encounter significant changes with the Chinese government’s announcement of new export controls on these critical minerals, effective August 1, 2023. Germanium and gallium hold immense importance in various industries such as semiconductors, solar panels and electric vehicles,” the US International Trade Commission (USITC) acknowledged after China’s export controls were announced in July 2023. “The United States is heavily reliant on imports for both of these critical minerals, especially from China, given its dominant role as a major producer and supplier of both products.”
“The EU is heavily dependent on imports of certain raw materials: rare earth elements including scandium and yttrium (REE+), magnesium, ferro-niobium, germanium, borates and gallium,” the European Commission (EC) similarly stated on February 10. “In most cases, production within the EU is small and mostly involves processing and much less mining or extraction. Additionally, imports are often concentrated in one or two partners, which makes the EU vulnerable to supply disruptions in critical technology sectors.” China’s exports of germanium account for 45 percent of the EU’s total imports of the mineral; its exports of gallium comprise an even heftier 71 percent of the EU’s total imports.
According to an August 27 FT report, the export curbs led to a near-twofold jump in germanium and gallium prices in Europe over the previous 12 months. “The situation with China is critical. We are depending on them,” an unnamed person who works at a large consumer of semiconductor materials told the FT at the time. “If China reduces gallium exports as it did in the first half of the year, then our reserves will be consumed, and there will be shortages.”
Jan Giese, a senior manager at the Frankfurt-based metals trading firm TRADIUM, also acknowledged to the FT that the share of gallium and germanium his company was able to obtain through China’s new export mandate was a “fraction” of what they were previously able to acquire. “These export controls cause this extra stress on everything outside of China and another layer of complexity to markets that are difficult to navigate anyway,” Giese added.
Facing such strict curbs, Europe is exploring alternative routes for sourcing germanium, gallium and a host of other critical minerals. In November 2023, the EC hosted a meeting of suppliers and buyers to promote local production, with Reuters reporting that Greek energy and metals group Mytilineos confirmed its pilot project to assess the most cost-effective way to extract gallium as a byproduct of bauxite-processing activities that it could build to scale in 18 months.
According to Mytilineos’s chief executive officer, Evangelos George Mytilineos, more support is needed for its core aluminium business, which has suffered under high energy prices and carbon-emissions levies. “We are trapped by the tools selected by the EU for the green transition. We need massive affordable energy,” Mytilineos said, as reported by Reuters. “We see demand is rising. The Commission needs to provide incentives to go for it.”
In April 2024, the industry association SEMI (Semiconductor Equipment and Materials International), representing more than 3,000 member companies and 300 European companies from across the microelectronics manufacturing and design supply chain, delivered its main concerns and key recommendations regarding the germanium and gallium export controls to the EC, the European Parliament (EP) and the Council of the European Union.
SEMI noted that in the short term, the EU’s semiconductor industry would not experience any detrimental impacts on its supply chain as a result of the Chinese export restrictions on gallium and germanium. This is because exports of the two minerals from China remain ongoing—albeit under more restricted conditions—while “very small quantities” of gallium and germanium are needed to produce the derivatives used for semiconductor production. The industry remains “confident” that it can mitigate the potential impacts of the export controls in the interim.
Over the long run, and in the event of trade escalations and further export restrictions, the European semiconductor industry could be seriously impacted by shortages of critical raw materials, particularly considering the lack of domestic-production capacity that could offset such shortages for the foreseeable future. “Building up a respective value chain from mining to processing with sufficient capacity in Europe would require significant time and large investments to allow supply chains and market prices to adjust effectively,” SEMI advised. “The establishment of suitable production facilities in Europe could take multiple years to scale up.”
SEMI asked policymakers to consider the following policy recommendations:
- Adopting a “fact-based and pragmatic approach” to the export restrictions, acknowledging the existing strategic dependencies, as well as accounting for the low quantities used by the semiconductor industry and its position in the supply chain;
- Engaging in “constructive multilateral negotiations” to de-escalate trade tensions with China, preventing the continuation of retaliatory measures and ensuring that raw materials and components are free-flowing once again;
- Diversifying and de-risking the supply chains for critical raw materials by engaging with worldwide “strategically aligned trade partners”;
- Assessing opportunities for supporting the development of EU value chains for critical raw materials by acknowledging the competitive nature of such value chains.
Beijing insists that its export controls on key minerals are “legitimate measures” to safeguard its own national security. “It is no secret that germanium and gallium can be used for semiconductor applications and military equipment components. China’s adoption of export controls is to ensure that these minerals are used for legitimate purposes so as to safeguard China’s national security and interests and better fulfill its international obligations,” an editorial by the state-owned Global Times publication stated. “Amid a complex and volatile international political and economic environment, there is nothing wrong with China taking necessary measures to protect its own security and safeguard the stability of its own industrial and supply chains.”
While it does not want to engage in malicious competition with the West, the piece added, China possesses “the necessary capabilities to address Western ‘decoupling’ efforts and high-tech pressure, a strategy that serves the purposes of safeguarding China’s national interests while showing respect for international rules”.