Prices of gallium and germanium rise as China export controls loom

Prices of two vital chipmaking materials are rising ahead of export restrictions imposed by the Chinese government coming into effect next week.

The Chinese Ministry of Commerce warned earlier this month it would place export controls on gallium and germanium plus some compounds containing them, meaning that anyone wishing to sell these materials outside China would first have to submit an application and obtain permission to do so.

Beijing said these measures are necessary "in order to safeguard national security and interests," and are due to come into force as of August 1. However they are being widely viewed as retaliation for the blocks on technology exports to China by the US and other countries.

According to Nikkei Asia, the price of gallium is up 18 percent since the end of June, reaching $332.50 per kilogram in US and European markets, while germanium has increased more modestly, up 4 percent this month to about $1,390 per kilogram.

Both materials are used in the manufacturing of semiconductor products, with gallium useful for power devices for electric vehicles and high-speed switching circuits, while germanium is used in fiber-optic systems, infrared optics, solar cells and light-emitting diodes (LEDs).

It is feared that a reduced supply of either material could drive up the costs for manufacturing some electronic products or even hinder development of newer advanced chips.

China is believed to be the largest global source for both metals, but estimates vary. The country is understood to be the source of about 60 percent of the world's germanium, with the rest coming from Canada, Finland, Russia and the United States. At least 80 percent of the world's supply of gallium is said to come from China, but some estimates put this as high as 98 percent.

Earlier this month, it was reported that some companies were stockpiling either the materials themselves, or intermediate goods that rely on them.

German company Freiberger Compound Materials, which uses China-sourced gallium for the gallium-arsenide (GaAs) semiconductor wafers it produces, told Reuters it was seeing a burst of orders to increase inventory levels as customers frantically stockpile.

"My clients are not relaxed about this at all. The industry is very much on edge," chief executive Michael Harz said.

However, as The Register reported when the export restrictions were announced, some experts believe there is no need to panic, as there is currently no shortage of either gallium or germanium and any attempt to limit supplies will simply stimulate production elsewhere.

This is backed up by US-based think tank The Stimson Center, which said the new controls will force countries to advance policies that reduce their dependence on China for critical materials, although it may take years to do so.

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It highlighted that China tried similar tactics with so-called rare earth elements in 2010, which led to importing countries diversifying their supply away from China, while smuggling of the materials expanded so much that importers such as Japan saw little impact on shipments of rare earths from Chinese sources.

However, China has already ominously warned that the impending export controls could just be the beginning of Beijing's countermeasures in the chip wars, and it may expand the measures to other critical materials if outside restrictions on China continue to escalate. ®