Reading 6 minutes | By Bernard Dahdah, Metals & Mining Analyst and Sylvain Eckert, Senior Industry Banker
Starting 1 August, China will implement export controls on two minor metals: gallium, mainly used in semiconducting material and lighting, and germanium, used in infrared optics, optical fibers and satellite solar cells. This decision has been widely perceived as a protectionist step as part of the simmering tensions between China and the western bloc, mainly aimed at slowing down each other’s technological advances.
In a webinar, Bernard Dahdah, Metals & Mining Analyst and Sylvain Eckert, Senior Industry Banker, Natixis CIB, argue that Chinese restrictions on these two metals are unlikely to have a major impact on western countries, neither on their economy nor industrial production. That said, China has a complete monopoly on other metals and rare earth elements (REEs), through which it can inflict more severe consequences.
A first warning shot
Gallium and germanium are minor metals not found in their elemental state in nature. Gallium is a by-product of processing bauxite into alumina, while germanium is obtained through the leaching of zinc residues and coal fly ash.
The decision, which China presented as to “protect national security and interests”, can rather be considered a first warning shot. Indeed, the Chinese restrictions on germanium and gallium are unlikely to have a major impact on western countries, for many reasons.
Restrictions on germanium and gallium are unlikely to have a major impact on western countries
First, in the short term, the US and Europe have stockpiles. In addition, unlike other minerals, they are not entirely dependent on China. China accounts for 53% of US imports of germanium, another 33% coming from EU countries. China accounts for 71% and 45% of EU imports of refined gallium and germanium, respectively.
Second, the two minerals can be substituted by silicone for most applications, at a similar - if not lower – price. Admittedly, at the expense of performance, and in some cases, such as for some defence applications and solar satellite cells, they cannot be substituted.
Finally, western countries could easily and quickly re-start the production of those two metals. The knowledge, natural resources and skills are available. The reason for production had been curtailed was purely economic, given price dumping practiced by China. That said, price is not an important part of the equation in view of the extremely small monetary value of gallium and germanium when compared to the end value of the final products.
A “now or never” opportunity for China to play up its dominant position in minor metals and rare earth
Gallium and germanium do not therefore appear to be the main concern at stake. The bigger issue is whether China then decides to stop or restrict exports of rare earth elements, as for many of which western countries are 100% reliant on China. It would in fact be much harder to relocate REEs mining domestically, given the potential resistance of local populations to what has a large environmental footprint. Some of the know-how in the West has also been eroded, even if it is still there. In the end, setting up new mines could take at least a decade.
Since the start of the Russia Ukraine war, the European Union and the United States have “officially” woken up to the threat of resource control and are taking measures to diversify away from China and Russia to secure resources relating to the energy transition and strategic goods. With this warning, China seems to be playing its “now or never” card to play up the dominant position that it has in minor metals and REEs.
