China melting its leverage: will we run out of gallium and germanium

Dependency on gallium and germanium has been growing for a long time. While there’s no quick fix for a problem that doesn’t yet exist, China could see its current leverage reduced in the long term.

A single truck could carry all the gallium that the US reportedly consumes each year. Most of the 18 tons of silvery metal are imported from China, the world's largest producer.

While used in high tech, gallium is also used in less discrete applications, for example, as a thermal solution to cool a CPU. Gallium is even sold on Aliexpress with prices at around 60 dollars for 100 grams, or on Amazon, currently at 70 greenbacks for the same amount. This is a time when China’s export restrictions are in place.

Wholesale prices for low-quality gallium have remained relatively stable at around $250-300 per kilogram. Prices were twice as high a year before, according to tradingeconomics.com. There’s no shortage here, at least for now.

A more critical resource is gallium arsenide (GaAs) wafers that are used to produce chips. The US imports 550 tons of those. The value of the shipments, at $220 million, is comparable to the price of three F35 fighter jets. The wafers are produced from low-quality gallium in various countries.

The story with germanium seems even less newsworthy. According to the United States Geological Survey (USGS) of 2022, the US only consumes 30 tons of germanium a year, with a cost of $39 million. While China is again the primary source, there are others too.

This metalloid has no direct consumer applications – besides some obscure jewelry – but it’s also used in many electronics products. The price of germanium has risen recently to $1340 per kilogram but this level is also not unseen. In 2018, it was traded at $1543 per kilo.

And China’s export controls, at least yet, don’t even extend to a full halt on exports, according to China.

“The Government of China imposes export control on gallium and germanium-related items in accordance with the law, ensuring that they are used for legitimate purposes, with the aim to safeguard national security and better fulfill international obligations. It should be noted that export control does not prohibit exports, and exports that meet the relevant regulations will be allowed,” Shu Jueting, a spokesperson from China's Ministry of Commerce, explained.

She emphasized that gallium and germanium-related items can be used both for military and civilian purposes.

“Export control on gallium and germanium-related items is international customary practice and major countries in the world have also imposed control on such items,” she said.

While it doesn’t appear that the world is going to run out of these metals anytime soon, China can still put pressure on supply chains. China’s export controls are interpreted as a retaliatory act for semiconductor restrictions introduced by the US, Japan, and the Netherlands.

Gallium and germanium are just two resources on which the US is critically dependent. In 2022, imports made up more than one-half of the US apparent consumption for 51 nonfuel mineral commodities, and the US was 100% net import reliant for 15 of those, according to USGS. China is the leading source of 26 critical commodities.

Both gallium and germanium are not found on their own in nature and often result from other processes. Even if digging and refining rocks into precious metals is possible, it’s a dirty, polluting, expensive, and non-profitable business that most Western companies would prefer to avoid. This could change in a world of less globalization and specialization but more protectionism and nationalism.

Why worry about gallium?

The US hasn’t refined a single gram of gallium domestically since 1987.

Gallium is abundant, however, in very small concentrations, up to 50 parts per million in bauxite (aluminum) and zinc ores. Therefore it is only economically viable to refine it as a byproduct of aluminum or zinc production.

The primary production of low-purity gallium outside of China is almost nonexistent. China produced 540 tons of the metal in 2022, accounting for 98% of worldwide production.

Gallium producers outside China most likely restricted their output due to China’s dominant production capacity. Germany, Hungary, and Kazakhstan ceased primary production in 2013-2016.

While imported gallium is valued at about $5 million, a much more important resource is wafers made from gallium compounds.

Over 550 tons of gallium arsenide (GaAs) wafers, valued at $220 million, were imported in 2022.

Three-quarters of domestic gallium consumption is attributed to integrated circuits used in defense, high-performance computing, and telecommunication industries. Meanwhile, the remaining 25% is accounted for by optoelectronic devices, such as laser diodes, light-emitting diodes (LEDs), photodetectors, and solar cells.

High-purity refined gallium is used for those applications and its production in 2022 was estimated to be about 290 tons. Canada, China, Japan, Slovakia, and the United States all produced high-purity refined gallium.

If, suddenly, China’s shipments disappear, some low-purity gallium production capacities still exist in Germany, Hungary, and Kazakhstan. Due to the increase in gallium prices, Germany has announced that it will eventually restart primary gallium production.

There are no government stockpiles of gallium in the US, and the total year-end stocks of 2022 of this metal are valued at 2.8 tons, which could last for two months. Some gallium is recovered from scrap.

Substitutes, however, are limited. A part of gallium may be substituted with silicon-based semiconductors. However, in defense-related applications, there are no effective substitutes for ICs, produced from GaAs, because of their unique properties, according to USGS.

There are more alternatives for germanium

The situation is somewhat different with germanium as some of this resource is produced domestically. Zinc concentrates containing germanium were produced at mines in Tennessee and Alaska, and germanium was recovered from smelters and refineries in Clarksville and Canada.

However, the reliance on germanium imports is greater than 50%. In total, 30 metric tons of germanium were consumed in 2022. The estimated value of the metal, based on the annual average germanium metal price, was $39 million.

This metalloid is used in electronics, solar applications, fiber-optic systems, infrared optics, and polymerization catalysts. Other uses include chemotherapy, metallurgy, and phosphors.

In total, China’s exports of germanium accounted for 23.1 tons yearly, and most of those were sent to Germany, Hongkong, Japan, Belgium, the US, and Russia, in descending order.

If shipments from China were to stop completely, the US Government would have a stockpile of 14 tons of germanium metal, almost 7 tons of scrap, and tens of thousands of germanium wafers.

The US can recycle new and old scrap, which is often recovered from the windows of decommissioned tanks and other military vehicles. More than 60% of the germanium metal used is routinely recycled as new scrap during the manufacture of most optical devices.

Substantial germanium resources are available in other metal ores deposits in Alaska, Tennessee, and Washington. The owner of a zinc smelter in Clarksville, TN, planned to construct a new $90 million gallium and germanium processing plant at the site, the plant could recover an estimated 40 tons of germanium per year. Significant amounts of germanium are contained in ashes from coal power plants.

Substitutes are also common, especially in specific electronic applications where silicon can be a less expensive alternative. Some germanium may be replaced by other compounds in high-frequency electronics, light-emitting diode applications, sometimes at the expense of performance.

Defense supply chain targeted

Irina Tsukerman, a geopolitical analyst, national security lawyer, and President of Scarab Rising advisory, explains that China’s Ministry of Commerce's announcement about restrictions on the export of gallium and germanium for reasons of national security targets key elements within the Department of Defense’s (DOD) supply chain.

“In reality, China's national security is not threatened. Rather, this step is a way to cobble US industry capabilities and undermine its position as PRC's economic competitor. Gallium and germanium play a key role in the microchip war, which has galvanized the US defense in an effort to find alternatives to China-backed supply chains,” Tsukerman said.

Military applications of germanium include night-vision devices, satellite imagery sensors. Gallium is used in radars, radio communication devices, satellites, LEDs, electronic vehicles, and fiber optics.

Tit-for-tat

It began with US restrictions on the supply of Taiwan’s semiconductors, also for national security reasons, which inhibited China’s military ambitions and have led to the retaliatory steps. The tech trade war initiated by the US will undermine its and other states' efforts in the new arms & tech race.

“China's role in gallium and germanium production is by far superior to everyone else, with PRC producing 80% of the global gallium supply and 60% of the germanium,” Tsukerman explains. “China's step will not just impact the US, Japan, and the Netherlands, all of whom imposed microchip-related restrictions on China, but most of the international community trading with those countries.”

This significant disadvantage may streamline the global community into trading directly with China to avoid the same fate. By disrupting critical elements in the supply chain, China seeks to maintain a competitive advantage.

“US will find itself in a losing position against China on this issue unless it can quickly come up with an alternative means of producing either these raw materials or develop functional substitutes.

She expects an increase in businesses and agencies seeking to go around restrictions and a rise of intermediaries figuring out ways of accessing supplies via third countries or private arrangements.

“Politically, US and others cannot simply lift microchip restrictions as a gesture of goodwill as it will signal weakness, undermine the China containment strategy, and at the end of the day will probably not stop China from pursuing restrictions and pushing for its own development of microchips,” Tsukerman said.

China’s act is a double edge sword as Western industries are leading in innovation, and even the most drastic hindrances will be temporary. Incentives to catch up with lost production would lead to alternatives and substitutes.

“The DOD is looking to ramp up mining capabilities under the Defense Production Act Title III to process these critical materials for the microelectronics and space supply chain via US processes.”

Refining capacities will take time to build, even with national security-related legislation to speed up the process.

China’s announcement already caused stockpiling of resources. The German producer of GaAs wafers and the world’s biggest buyer of gallium, Freiberger, told Reuters that it has several months’ worth of gallium in stock because it had long anticipated some form of trade crisis. And the chief executive Michael Harz does not believe that China will disrupt gallium trade flows over the next few years. That would quickly hurt its own electronics industry.

Yet the dilemma looms over whether producers can continue to rely on China, which could eventually start dwindling the country’s monopoly.

Tsukerman does not expect defense contractors to run out of gallium and germanium soon.

“Even without domestic stockpiles, the supply chains will probably not suffer immediate, long-lasting disruptions – or at least not until China prohibits the resale of semiconductors or gallium and germanium supplies to the targeted countries.”

The limits on foreign trade are nothing new. The US itself has established tariffs even to allied EU or other countries on particular steel or aluminum commodities in 2018, citing national security concerns or needs to protect domestic industries.

Other minerals the US depends on

While gallium and germanium are essential, there are more critical minerals that the US does not produce domestically.

The US is 100% import reliant on arsenic, asbestos, cesium, fluorspar, gallium, indium, manganese, mica, niobium, rubidium, scandium, strontium, tantalum, yttrium. On tens of resources, the reliance is larger than 50%.

To better illustrate the US’s appetite for commodities, the value of domestically processed mineral materials in 2022 amounted to $815 billion, and net imports of these materials added $118 billion.

The estimated value of US metal mine production in 2022 was $34.7 billion. Principal contributors were copper, 33%; gold, 28%; iron ore, 15%; zinc, 9%; and molybdenum, 5%. Rare metals make up a tiny percentage of total shipments.