China export curbs on semiconductor materials stoke chip output fears

Chinese export controls on crucial semiconductor materials are hitting supply chains and stoking fears of shortfalls in western production of advanced chips and military optical hardware.

Beijing’s curbs on shipments of germanium and gallium, which are used for semiconductor applications and military and communications equipment components, have led to an almost twofold increase in the minerals’ prices in Europe over the past year.

China introduced the restrictions, which it says safeguard its “national security and interests”, last year in response to US-led controls on sales of advanced chips and chipmaking equipment.

The curbs and subsequent export controls have highlighted Beijing’s dominance of global supply of dozens of crucial resources.

The country produces 98 per cent of the world’s supply of gallium and 60 per cent of germanium, according to the US Geological Survey.

“The situation with China is critical. We are depending on them,” said a person who works at a large consumer of semiconductor materials.

Analysts said the controls made clear President Xi Jinping’s government was willing to target western economic interests to hit back against the controls on China’s access to cutting-edge chips and other advanced technologies.

The person at the affected company said that while some large shipments of Chinese gallium were still being made, overall exports had fallen by about half since the controls were implemented.

“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,” they said.

Jan Giese, senior manager of minor metals at Tradium, a Frankfurt-based trader, said the gallium and germanium his group had managed to obtain through China’s new export licensing programme was a “fraction of what we bought in the past”.

“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 said.

The two materials are essential for production of advanced microprocessors, fibre-optic products and night-vision goggles, so continued throttling of exports by Beijing could disrupt production of such goods.

Beijing also announced export restrictions this month on antimony, a mineral used in armour-piercing ammunition, night-vision goggles and precision optics. The measure followed China’s imposition of controls on exports of graphite and technologies used in rare earth extraction and separation.

Germanium prices have surged 52 per cent since the start of June to $2,280 a kilogramme in China, according to data provider Argus.

“The Chinese aren’t even offering germanium overseas now,” said Terence Bell, manager of Vancouver-based Strategic Metal Investments, a minor metals trader.

Under the gallium and germanium controls, each individual shipment needs approval, taking 30 to 80 days and making long-term supply contracts unviable due to uncertainty, traders said. Applications must specify the buyer and intended use.

Cory Combs, associate director at the Beijing-based Trivium China consultancy, said Beijing’s main motivation was to “send signals” that it could retaliate against US-led pressure on Chinese companies and vital industries.

“Ultimately the biggest reason [for the controls] is if they ever do want to block exports to a certain place, they can deny the licences,” he said.

Traders blamed Chinese stockpiling for the jump in the price of germanium, which is used to make advanced chips, fibre-optic cables, solar panels and military thermal imaging cameras.

Giese said the amount of germanium being stockpiled was a matter of market speculation, but “what is almost certain...is that the total volume in question represents a significant share of China’s annual production”.
China’s foreign ministry declined to comment.

Combs at Trivium said Beijing saw export controls in part as a way of securing its own supply of the materials used in clean energy technologies at the heart of the country’s industrial upgrading.

China was using the restrictions to help its efforts to catch up with the US and other leaders in semiconductor technology, said the person at the company that is a large user of semiconductor materials.

“Assuming the global situation and US-China relationship stays as it is, then I don’t see any motivation for China to relax the export controls,” the person said.