China to restrict exports of gallium and germanium on national security grounds
Gallium and germanium – two of the rarest metals on the periodic table – are stealing headlines this week as China announced plans to limit exports of the metals on the grounds of national security.
Gallium and germanium are used in small but often necessary amounts in certain types of high-end fiber optics, solar cells and most critically, in microchips used for quantum computing, telecommunications, electric vehicles, defense, and an array of other mission critical applications.
China dominates global supply of both gallium and germanium, which are present in the Earth’s crust in such low concentrations that they can only ever be conceivably produced as minor byproducts of other metals, such as zinc (prices notwithstanding).
In light of the news this week, rare earths have also re-entered the limelight with many of our clients, and others in the media, questioning if they could be next on China’s list of restricted exports – after all, the nation famously but temporarily halted rare earth exports to Japan in 2010 at the climax of a territorial dispute.
To that question, we do believe the potential for China limiting rare earth or magnet exports is now higher than it was before it pulled the germanium and gallium card, albeit the potential is still low and unlikely in our view.
The export limitations on gallium and germanium that China has currently tabled are retaliatory, in response to the U.S. Chips Act and other policies, and are directly targeted at those industries and players that it feels attacked by.
In essence, the U.S. and its allies are telling China “‘no chips or chip making equipment for you” and China is responding by limiting the flow of potatoes.
A halt on rare earth or magnet exports would be a provocative move on China’s part
A halt on rare earth or magnet exports would be a provocative move on China’s part and one from which it too would not be immune from the fallout.
The last time China limited rare earth exports it resulted in years of demand destruction as many end-users looked to reduce their consumption or switch to alternatives in the years to follow. Doing so now, when the global EV and wind industries are booming, would be putting a lot on the line for China.
Where the gallium and germanium export limitations could impact rare earths in the near-term, however, is on the demand side.
Should this move further constrain availability of microchips needed for electric vehicles and vehicles in general, thereby limiting the number of vehicles that can be produced in the years ahead, this could put downward pressure on rare earth magnet demand for EV traction motors and other micromotors, sensors and speakers used widely throughout virtually all new vehicles.
As always, we’ll keep a grip on the pulse going forward and update as the story unfolds.Back to overview