China, the world’s leading producer of gallium and germanium, announced new export controls on these critical materials used primarily in the semiconductor industry. The restrictions came in response to trade war escalations with the US and Europe, following moves to limit China’s access to vital chipmaking technology. The new rules will require Chinese companies to obtain an export license for these metals, marking a significant change in the dynamics of global technology manufacturing.

Gallium and germanium are two critical materials used extensively in high-tech industries. They are typically extracted as byproducts from the processing of other minerals. Gallium is primarily extracted during the refining of bauxite, an aluminum ore, and to a lesser extent, from sphalerite, a zinc ore. Germanium is also primarily derived from zinc ore, in addition to coal and silver ores.

These inputs are essential in producing compound semiconductors, an integral part of chipmaking and telecommunications equipment. Gallium nitride is extensively used in chips powering 5G network base stations, and its limited supply could stifle the rollout of 5G technologies globally. Similarly, germanium’s widespread use in fiber-optic cables, solar panels, and LEDs also suggests potential disruptions in these sectors.

Supply chain and market dynamics

China currently dominates as the leading producer of gallium and germanium, supplying approximately 80% and 60% of global supply, respectively. Though deposits of both gallium and germanium exist elsewhere, increasing production is a challenging process. These metals are difficult and expensive to extract, and a supply glut created by China’s overproduction over the last decade forced producers elsewhere to taper or cease production.

A likely scenario in the wake of China’s restrictions is a rise in the global prices of gallium and germanium, repeating a similar experience during the COVID-19 pandemic, in which China’s COVID zero strategy halted production activity and curbed the volume of exports. The resulting price increase could make extraction economically viable for countries that have, until now, been secondary or tertiary players in these markets. These include Russia, Canada, and the United States for germanium, in addition to South Korea and Japan for gallium.