In August this year, the Chinese government introduced export licencing on a range of gallium and germanium products, citing national security. Amid a lack of clarity about the impact, Argus Media looks at the European market reaction
China’s export controls on gallium and germanium could cut some international trading firms out of the market, as exporters are now required to notify authorities of the final end-user and application of the material traded — information that some companies may consider too sensitive or not feasible to provide.
China’s new export controls on gallium and germanium came into effect on 1 August and so far only one company has been confirmed to have received an export license, though many companies have applied, Argus has heard.
The Chinese subsidiary of US-based semiconductor manufacturer AXT, Beijing Tongmei Xtal Technology, has received the initial export permits to resume its shipments of gallium arsenide and germanium substrates to select customers. But so far this news has had no impact on the price or availability of gallium and germanium metals in Europe, as traders and consumers wait for further licenses to be issued.
“We are reviewing the applications according to the law and regulations and have granted licenses to some companies. We will continue to review and approve applications from other companies.” A spokesperson for the Chinese Ministry of Commerce has said.
There is still considerable uncertainty about the process and implementation of the new rules, and market participants outside China are trying to gauge how the requirements compare with existing export licensing rules that they already navigate for some other metals.
Gallium and germanium are considered dual-use items — a label also ascribed to hafnium and zirconium because they have both civilian and military applications.
International trading firms have been navigating China’s export licence process for hafnium for some time, suggesting that the requirements are manageable and easing concerns over gallium and germanium among some market participants. That said, it can be a complicated process and the exact requirements can vary depending on the commodity and seller.
Overall buying interest among European traders has waned since the restrictions were announced, and some sources warn that it is the start of a longer-term slowdown in spot trade.
“We have a small position, but we are increasingly taking a back seat in these markets,” one European trader said, noting that the measures could enable larger Chinese corporations to gain greater control over the supply chain. “I would have thought there will be fewer traders involved in these markets in the coming months [or] years due to how difficult it could become to source metal,” he added.
Another trading house said it has some existing stocks in Rotterdam but is hesitant about trying to make any new large purchases. “It’s not an easy decision because you have to disclose your end-users,” the trader said. “Will that remain confidential? Will the buyer be contacted directly? There are a lot of uncertainties… for traders that don’t want to take any position or that do back-to-back transactions it is the end of the game.”
The fact that so few licenses have been granted so far is also a cause for concern, according to some market participants, who point to applications that are yet to be processed by local authorities, after which they then need to be submitted for approval at a national level by China’s ministry of commerce. It appears likely that the process will take more than the 45 days initially stated, they said.
Ultimately, the participation of fewer traders may tighten availability in Europe — a concern that is already tangible. “Companies that buy gallium arsenide and gallium nitride substrate [used in semiconductors] are concerned about their supply chains, and working hard to secure them,” a supplier told Argus. “It appears to be much more challenging in gallium with no real primary production outside China, whereas in germanium there is substantial ex-China volume,” he added.
China might face a surplus of supply as export options narrow. The divergence between geographic fundamentals is already reflected in the spot market, with a widening disconnect between Chinese and European prices.
Chinese domestic prices for 99.99pc grade gallium metal were last assessed at Yn1,950-2,000/kg ($267-274/kg) ex-works on 21 September, while European prices for the same grade were at $420-450/kg cif main airport. It is not uncommon for the regions to diverge slightly, but the $164.50/kg spread in US dollar terms is now at its widest on record, referring to Argus’ gallium price history dating back 20 years.
For comparison, on 3 July, just before the export controls were announced, European gallium prices stood at $280-282/kg cif, China’s export controls on gallium and germanium could cut some international trading firms out of the market, as exporters are now required to notify authorities of the final end-user and application of the material traded — information that some companies may consider too sensitive or not feasible to provide.
Ultimately, much will depend on the willingness of those submitting and reviewing export licence applications, market participants said. “I am sure that it is possible to obtain a licence for gallium and germanium but — as for hafnium — it requires close co-operation and a high degree of openness between you, your supplier and export licence authorities,” a fourth trader said.
By Argus Media
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