China’s gallium and germanium exports drop to zero in August

Follows July announcement that export limitations were coming

China’s exports of wrought gallium and germanium fell to zero in August due to export controls on the two critical chipmaking metals, Reuters reported.

The nation exported 8.63 tonnes in July, more than double June’s outflows, as foreign buyers looked to stock up in advance of anticipated export curbs.

China announced in July its intent to impose export limitations on the metals.

(Video previously recorded on July 6, 2023)

Used in small but often necessary amounts in mission critical applications

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 and aluminum (prices notwithstanding).

In light China’s export curbs on gallium and germanium, many have questioned if rare earths 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.

Potential for similar REE export restrictions low and unlikely in our view

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.