Interview: Effects of China's US export ban on the supply of raw materials

Last week, China banned the export of four important raw materials for the chip and defense industry to the USA, including gallium, germanium and antimony. The Ministry of Commerce in Beijing justified the move as a reaction to the latest US sanctions against China's Halbleiterindustrie.

The explosive aspect of the Chinese export ban is a clause that also applies to companies in other countries: As the New York Times reports, these companies are not allowed to transfer raw materials sourced from China to US companies. China is threatening legal consequences in the event of non-compliance.

Beijing is thus forcing companies worldwide to choose between the US market and China as a supplier. Until now, China has been reluctant to impose such bans on third countries. However, the measure could divide global supply chains even more.

China dominates the mining and processing of the four raw materials as well as graphite, which is also affected by stricter export controls introduced by the country last year.

In this interview, geologist Siyamend Ingo Al Barazi explains the impact that the raw materials embargo imposed by China on the USA could have on the German economy and Germany's dependence on raw materials extracted in China. He heads the Raw Materials Management Department at the German Mineral Resources Agency (DERA) within the Federal Institute for Geosciences and Natural Resources (BGR).

heise online: When China imposed the export ban on gallium, germanium and antimony against the USA, a murmur went through the Internet, only conspicuously little was heard from the USA itself. Is this calmness an act or does it mean that the USA has other sources for the raw materials?

Siyamend Ingo Al Barazi: Chinese exports of gallium and germanium to the USA have already been declining for selected product groups in recent years. Germany was also initially affected by the export controls that China imposed on gallium and germanium in August 2023. In the following months, very little or no material left the country overall, which led to a tense supply situation and rising prices. An analysis of trade data shows that trade with China has largely normalized for Germany. China was also an important trading partner for the USA for gallium, germanium and antimony.

However, the USA recognized certain critical dependencies early on and introduced measures to diversify. One example of this is the germanium processor Umicore, which operates in both the USA and Belgium. Umicore is supporting a project in the Congo to secure material from a large slag heap for reprocessing. This shows how important and successful diversification processes can be. The USA is in a different situation with gallium, for example, as it has already reduced imports from China in recent years. In the period from January 2023 to September 2024, 61% of total germanium imports still came from China. Belgium was another important supplier country. However, no more material is now being exported to the USA, which is particularly relevant for antimony, as China was a major exporter to the USA.

Does this mean that the export ban imposed on the USA is ultimately ineffective because the country can already cover its needs by diversifying from other sources?

No, not quite. China is by far the most important producer of these three raw materials. The overall dependencies are very high. China also uses export controls not only to regulate other raw materials such as rare earths and graphite, but also to gather valuable information about buyers. These controls oblige exporters to provide detailed information about the recipients of the raw materials. This provides China with transparency about the buyer structure and would theoretically make it possible to impose targeted sanctions or bans on individual companies. This practice should give pause for thought, as some of the raw materials concerned are used in critical applications such as the defense industry.

Were the export controls introduced last year directly noticeable for Germany?

Yes, we were definitely affected. This was clearly reflected in the global trade figures, as we did not receive any material from China for two to three months. In China, there is a time limit of around 45 days for processing an application for an export license. However, this processing time can vary – Sometimes it takes longer, sometimes it is quicker. After this phase, the first shipments arrived in Germany again with a delay, but the quantities were initially lower, especially for germanium and gallium. The situation only began to normalize in the course of 2024, and trade for Germany and Europe has now stabilized at roughly the same level as before the export controls.

Can you say approximately how much gallium and germanium Germany imports? Just to get a feel for the quantities?

We have a raw materials information system (ROSYS), which mainly shows production data for various raw materials as well as trade data. This is based on information from the Federal Statistical Office. We also use commercial data from the Global Trade Tracker, which we are not allowed to incorporate directly, but which we do evaluate.

We imported a total of around 60 tons of antimony in the first quarter of 2024, around 50 tons of which came from China. The gallium market is smaller, but Germany imports significant quantities: In the first quarter of 2024, there was a total of 13 tons of gallium, 5 tons of which came from China. In comparison, after the announcement of export controls in August 2023, only four tons came to Germany in Q3 and Q4, less than one ton from China. In Q3/2024, total imports of gallium, both in raw form and as powder, amounted to over 15 tons, of which around 10 tons came from China.

Germanium is an even smaller market. Germany imported just over one tonne in the first quarter of 2024, just under two tons in Q2 and around one tonne again in Q3. Around 30 to 50 percent of these imports came from China.

Can you explain what antimony is typically used for, for example? In other words, who processes it in Germany and what is it typically used for?

In Germany, antimony is mainly used in the form of processed intermediates such as antimony oxide and antimony trioxide. These products are mainly used as flame retardants. Antimony metal also plays an important role in the manufacture of ammunition. A major company in Belgium – Campine – also processes antimony oxide and trioxide.

Is germanium and gallium also used for the defense industry or is it intended for semiconductor production?

Gallium is a classic semiconductor material and plays a central role in the chip industry and in the construction of 5G networks. It is also used in optoelectronics. Germanium also has important applications, primarily in glass fibers, infrared technology and optical lenses.

Suppose Germany were also subject to an export ban on these raw materials. Would that be problematic or could Germany, like the USA, quickly find other suppliers in order to diversify?

It is difficult, but not impossible, to find alternatives to gallium and germanium outside of China. Diversification efforts should be driven forward, especially in light of geopolitical tensions. Gallium and germanium are obtained as by-products. Gallium is separated during bauxite processing, for example. There are bauxite deposits worldwide with higher gallium contents that could be used, and the investment costs for gallium extraction are relatively low. In Germany, there was gallium production at Aluminium Oxid Stade (AOS) until 2016, and there are projects in Greece and Australia, for example, that offer potential for gallium production.

However, many projects were shut down when prices were very low between 2014 and 2016. Now that prices have risen, production in other countries could be worthwhile again. The problem, however, is the high production capacity and full inventories in China.

If geopolitical tensions calm down, market conditions could normalize. If Europe builds up its own gallium production and the market is then flooded again, prices could fall again. This problem of overcapacity affects not only gallium, but many raw materials. Strategically, consideration should be given to whether certain critical production capacities in Europe, for example, could be supported in low-price phases in order to avoid dependencies, similar to what the USA does in certain areas.

This is perfidious: first you depend on a technology and invest a lot of time and money to build something up. But then the suppliers could suddenly turn the tables and flood the market with cheap products. We experienced something similar in the solar industry, albeit for different reasons.

Yes, that's true. Initially, an infrastructure was built up here and the products were not cheap. But with the ramp-up in the Chinese market and unrivaled low prices, competitors were squeezed out. Due to supply bottlenecks, particularly during the coronavirus pandemic, it became clear that it would make sense to build up our own production capacities again. Nevertheless, there are still constant ups and downs, and it seems difficult to break free from these dependencies, no matter what measures are taken.

China has a great interest in maintaining the dependency of other countries in order to control the market. This can also be seen, for example, in the field of lithium-ion batteries. Through its strategic investments and subsidies, China has established a dominant position in many markets, including many processed products.

China is pursuing a more comprehensive strategic approach that includes both technological and economic aspects. However, the question is how long China can sustain these massive subsidies in the face of internal challenges, such as the current slump in the construction and real estate sectors.

How can countries and companies effectively reduce dependence on specific regions in the global chip supply chain to hedge against geopolitical tensions and potential trade conflicts?

It is important to look at the entire supply chain, especially for raw materials such as gallium and germanium. The beginning of the value chain must also be considered and taken into account with these high dependencies. The focus here should be on a supply chain that is as diversified as possible.

The USA is trying to localize and strategically build up its supply chains, often through subsidy programs, while Europe and Germany are currently taking a less strategic approach.

An export ban for other countries could significantly disrupt global supply chains, as large production capacities would be affected. Under the Trump administration, awareness of potential trade conflicts has already been raised, so companies in the US are looking for alternatives to make themselves less dependent on China. There are efforts and projects to reduce dependence on China, but these are still in the development stage.

(vza)