China announced restrictions on the export of gallium, germanium, all critical raw materials for the technology industry. China has framed the restrictions as a matter of national security. However, they are commonly perceived as a response to recent U.S. restrictions targeting China’s technology sector by banning the export of advanced computer chips and semiconductor manufacturing equipment.
China has set the restrictions in a format that allows them to be applied liberally or strictly at Beijing’s discretion. It is not currently clear how these measures will impact exports, and therefore the global supply, of these materials. Short-term disruption as a result of market uncertainty and delays in acquiring export permits is highly likely, with potential for sustained and significant disruption, particularly in electronics, medical technology and automotive.
China continues to tighten export restrictions
China announced restrictions on the export of gallium and germanium in July 2023, with the controls taking effect on August 1. This was around nine months after the U.S. introduced its first round of export controls on advanced chips in October 2022. China responded much more quickly after the U.S. tightened its restrictions on October 17, 2023, with the Chinese Ministry of Commerce announcing restrictions on the export of graphite just three days later on October 20. This latest measure enters into force on December 1.
China’s restrictions apply to eight gallium products, six germanium products, and two types of graphite; high-purity, high-hardness, and high-intensity synthetic graphite in addition to natural flake graphite and its products. However, unlike the U.S., China did not completely ban the export of these items. Instead, exporters will a license from the Ministry of Commerce. The licenses require that exporters report potentially sensitive commercial information regarding their buyers. This includes information on end uses and ultimate users of the materials.
China is the dominant producer for restricted materials
China is responsible for the majority of global supply of these materials, which are used in a wide variety of applications. China has the third largest natural reserves of graphite in the world, which it exploits to produce around 65% of global supply. China also produces around 70% of the world’s synthetic graphite, which is a byproduct of the oil refining industry. Similarly, gallium and germanium are produced as a byproduct of refining other materials which Chinese companies produce at scale, mainly bauxite and zinc. As a result, China is responsible for producing around 80% of the world’s gallium and 60% of the world’s germanium.
Graphite is a critical component in the manufacture of anodes for lithium-ion batteries, which are used in most electric vehicles (EVs). The EV industry is growing rapidly, and this trend is forecast to continue. Automotive companies are increasingly shifting production to EVs, leading to increased demand for lithium-ion batteries, and therefore graphite. The demand for graphite used in EV batteries has increased by around 250% since 2018. This industry shift alone has the potential to create a supply crunch, and this risk is compounded by China’s restrictions further threatening global supply. Not only is China the world’s top producer and exporter of graphite, but it also refines around 90% of the world’s graphite into material used for battery anodes.
Graphite is also used as a material for wearable and implantable medical devices, such as pacemakers, due to its durability and biocompatibility. Furthermore, graphite is conductive and non-magnetic, meaning it can be used for sensors or alongside MRI machines. For these reasons it is often used in the production of medical devices over potential alternative materials. Graphite is also crucial for medical imaging where it is used to generate images in X-ray and ultrasound machines and to accurately display them in diagnostic equipment.
Gallium and germanium are both used in the production of semiconductors for advanced technological applications, which like graphite include the medical device and automotive sectors. This is because they have certain properties, such as increased power density and reduced noise, which enable them to outperform silicon in some cases. Automotive manufacturers use gallium in electronic components to increase the efficiency and performance of EVs while reducing weight. More generally, gallium compounds are widely used in the production of LEDs and Radio Frequency (RF) chips, both components in a multitude of electronic devices. Similarly, germanium is a critical component in a wide array of electronic and tech devices due to its suitability for infrared and fiber optic applications. Other applications of both materials include photovoltaic panels, lasers, and aerospace components.
Impact of China’s restrictions on global supply remains to be seen
In the best-case scenario, the Ministry of Commerce will liberally grant export licenses resulting in limited disruption to the amount of material allowed to be exported. Alternatively, China could be restrictive and grant very few export licenses. As the largest producer of gallium, germanium, and graphite, this would likely result in a significant drop in global supply and increased cost of all three materials. In fact, the price of gallium temporarily jumped by around 50% soon after China announced the restrictions in July. If sustained, this could feed through into the prices of finished products. And if supply shortages are significant enough, it could result in reduced production of products reliant on the materials, such as EVs.
Countries that rely heavily on China for gallium, germanium, or graphite will be more exposed to the export restrictions and potential supply disruptions. Japan, for example, is dependent on China for around 40% of its gallium supply, while the U.S. imports around 33% of its natural graphite from China. Some governments have been trying to de-risk their supply chains by diversifying their supply sources; however, given the lack of existing alternatives this will take time and investment. For example, the U.S. government is supporting companies in setting up domestic facilities to produce synthetic graphite or refine imported graphite. Similarly, international companies, including EV maker Tesla, Inc. and SK anode producer Posco, have recently begun investing in graphite supply in African countries, such as Madagascar, Mozambique, and Tanzania.
Similar strategies are likely for gallium, germanium, and other critical materials. While the new export restrictions from China will speed this process up, it will still likely be years before recently enacted projects lead to a more stable supply. For example, Australian battery manufacturer Magnis Energy Technologies is developing a graphite mining and processing facility in Tanzania with Tesla as a major customer, but commercial production is not scheduled to start until 2025.
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