China’s export curbs on gallium, germanium to raise chip prices in short term, diversify supply chain in long term

The United States, along with some European counties have imposed restrictions and have taken other strategic actions to curb China’s growing control and influence over the semiconductor industry. Beijing appears to have retaliated by imposing export controls on two critical rare elements necessary for semiconductor manufacturing. This could lead to disruption in the chip supply chain, and jack up prices of semiconductors and end products in short term.

“Gallium and germanium are two very important materials for semiconductors chips and key ingredients for technologies like GaN and SiGe, which are critical for power electronics chips, Radio Frequency chips, wireless communication and very high speed signaling. Applications like Electric Vehicles, data centres, 5G, Radar, GPS, wireless communication are critically dependent on chips made using these materials,” says Satya Gupta, President, VLSI society.

China accounts for more than 90% of gallium and 80% of germanium supply say industry experts. So, this may slow down the free flow of trade for these metals, drive up the demand with controlled supply and hence the costs for the components using these metals.

“Both gallium and germanium are essential metals. The costs associated with refining and manufacturing them could potentially pose some supply chain risks,” says Prabhu Ram, Head of Industry Intelligence Group (IIG) at CyberMedia Research (CMR).

Diversifying supply chain  

Just like most raw materials and components used across industries, China has been the dominant player in the supply of gallium and germanium as well.

“Germanium and gallium are important metals for the semiconductors industry but not rare. However, China has kept the costs low and as extraction is very costly, China has a monopoly for these metals,” says Neil Shah, Vice President of Research at Counterpoint. He adds Germany, Kazakhstan and Russia also used to supply these raw materials, but they slowed down production as competing with China’s scale and price was challenging.

It is also believed that even though the US holds the world’s largest germanium mines, it does not extract the raw material.

But in the recent years, there has been a significant emphasis on enhancing supply chain resilience through geographical diversification with the intent of minimizing disruptions. Prabhu Ram of CMR anticipates limited disruption globally arising from the immediate aftermath of this ban. “Instead, this ban could incentivise and accelerate the exploration and extraction of these elements in other regions,” he adds.

Independent semiconductor analyst Arun Mampazhy explains: “Other counties might have these raw materials, but they might not be extracting it now (just like Lithium). This could be due to various reasons such as the cost involved and lack of technology for mining.”

As these materials are available in other parts of the world, alternative sources of supply should be developed in the long run to enable diversification and make the supply chain resilient.