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Semiconductors, LEDs, iPhones, infrared radiation, and more. Do you know what these products have in common? All these modern products are manufactured using the key commodities germanium and gallium. China is the global leader in exports for both rare metals, exporting around 80% of the world’s gallium and about 60% of the world’s germanium.
Unfortunately, China has just issued critical restrictions on these commodities, creating a cause for concern for many businesses and manufacturers in the high-tech and semiconductor space. Curious about how these restrictions may affect your business? Read on to get an in-depth overview of the gallium and germanium restrictions, what is happening, which countries and industries are affected, and what your business can do to mitigate potential supply chain risk.
When Do China’s Geranium and Gallium Restrictions Go into Effect?
Starting August 1, 2023, China will control exports of germanium and gallium. Any business that wants to export these crucial materials will be required to have “special permission from the state,” according to a statement from China’s Ministry of Commerce.
According to MIT Technology Review, it’s important to remember that this is not a ban but a licensing system. This means the impact will vary depending on how difficult it is to obtain a license. What are the steps to secure a license? They are currently unknown, but China will ultimately decide which countries and businesses will be granted permits.
What Caused China to Restrict Exports?
China claims the restrictions will protect national security interests. However, the restrictions are believed to be a retaliation against actions taken against China over the past few years.
Most recently, the Dutch government announced restricted exports of semiconductor equipment to China. According to Reuters, these restrictions will help boost the US drive to curb supplies of high-tech components to China. The US has also taken other measures. In 2022, the US CHIPS and Science Act boosted domestic research and manufacturing of semiconductor chips which led to fewer purchases of semiconductors from China.
This is not the first time China has threatened the supply chain in retaliation. In 2010, China restricted exports of rare earth elements to Japan following a territorial dispute, sending prices soaring and Japan scrambling to find alternative sources.
Which Industries Will Be Impacted?
Industries impacted include semiconductors, high-tech, automotive, aerospace, and telecommunications. According to the United States Geological Survey (USGS), gallium and germanium are critical to the production of highly specialized circuits and transistors needed to make high-speed computers and smartphones. Gallium in particular is needed to manufacture gallium arsenide, an integral chemical compound used to make semiconductors.
Bindiya Vakil, Resilinc CEO and co-founder, commented on the restrictions in a recent Institute for Supply Management webcast. “In this fight, we only lose. China has a lot more processing and smelting capacity than any other country. It’s a can of worms because there are no near-term terms. (The US) has to be careful and tread lightly.”
Are There Substitutes for Germanium and Gallium?
Substitutes are scarce for germanium and gallium. For gallium, silicon can be a cheaper option, however, it comes at the expense of performance. According to Luisa Moreno, president and director of Defense Metals, silicon can be an acceptable substitute in low-end chip applications, such as cars. However, when it comes to more advanced technology like satellites and military applications, silicon won’t cut it.
Do other countries mine gallium? Only a handful of companies in Japan, Russia, South Korea, and Canada produce gallium at the required level of purity; and that only accounts for 20% of global gallium exports. There may be another way to mine more gallium, though. Currently, Gallium is obtained as a byproduct of making aluminum. However, it can also be made when processing sphalerite ore for zinc. This option is currently not cost-effective given the value of the materials, however.
Like gallium, germanium could also be substituted with silicon, but only in certain products such as high-frequency electronics, light-emitting diodes, and infrared applications. However, products made from silicon instead of gallium would also likely suffer from decreased performance. While China exports about 60% of the world’s germanium, the other 40% comes from Canada, the US, Finland, and Belgium.
How Your Business Can Prepare
If you know your product contains germanium or gallium, consider if any of the substitutes listed above are viable options for your product. To prepare your supply chain for future impacted commodities, be sure to map your supply chain multiple tiers deep—where critical commodities like germanium and gallium are found. With Resilinc’s Multi-Tier Mapping, your company can gain crucial visibility into your supply chain. Another preemptive step you can take is to invest in commodity tracking software. Resilinc’s CommodityWatchAI is a predictive algorithm that combines machine learning and proprietary data to predict commodity price fluctuations and supply constraints more than three months out.
For more information on the recent gallium and germanium restrictions, download Resilinc’s latest special report Implications of China’s Export Controls on Semiconductor Supply Chains here.
