China’s restrictions on chip metal exports serve as a wakeup call for nations to diversify their supply chains

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Export limitations imposed by China on gallium and germanium metals may incentivize certain countries to seek diversification in their supply chains, reducing reliance on China.

Stewart Randall, a consultant at Shanghai-based firm Intralink, stated that the export restrictions imposed by China could serve as a wake-up call for certain countries, prompting them to consider gradually establishing production capabilities in alternative locations.

Randall noted that if China had not implemented any measures, the majority of the world would likely have remained content with their reliance on China for supplies.

In a move perceived as a warning to Europe and the U.S. amid the ongoing tech war concerning advanced chips, China’s commerce ministry recently declared restrictions on the export of two crucial metals, gallium and germanium, which are vital for semiconductor manufacturing. These restrictions are scheduled to take effect from August 1st.

According to data from the Critical Raw Materials Alliance, an industry organization, China is responsible for producing 60% of the global supply of germanium and 80% of gallium.

The European Commission and the United States have both expressed concerns regarding China’s intended restrictions. Brady Wang, associate director of Counterpoint Research, noted that China’s decision to halt metal exports serves as a warning, highlighting the need for European countries to establish their own independent supply chains.

Luisa Moreno, president of mining company Defense Metals Corp, anticipates that China might enforce additional limitations on metal exports, potentially encompassing rare earths.

Rare earths are crucial components in the manufacturing of high-tech consumer products like smartphones and military equipment, including radar systems.

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This group of elements, including scandium, yttrium, and the lanthanides, constitutes the rare earths category, which holds significant importance in various industries.

During an interview on CNBC’s “Street Signs Asia,” Luisa Moreno expressed the expectation that export restrictions would persist, potentially extending to other materials such as rare earths. She emphasized that China maintains control over more than 85% of rare earth production.

In 2010, China suspended rare earth exports to Japan during a territorial dispute, and in 2019, there were threats to halt rare earth exports to the United States.

Counterpoint’s Wang stated that the immediate impact of the metal restrictions may not be substantial. However, if China proceeds to impose restrictions on other critical materials, it could pose longer-term challenges.

Randall from Intralink highlighted the importance for China to exercise caution, as implementing export blocks could have negative consequences for Chinese companies, leading to the loss of foreign customers.

In response to China’s upcoming export restrictions, some manufacturers are taking steps to diversify their supply chains. For instance, one supplier of the key materials mentioned that factories are preparing to commence gallium production. It’s worth noting that the two metals targeted by China’s curbs are not naturally occurring; rather, they are typically derived through the refining process of other metals.

Ross Berntson, the President and Chief Operating Officer of Indium Corporation, mentioned that they have been receiving numerous inquiries from their customers, indicating heightened market activity. To ensure a secure supply, they are actively engaging with the market. Berntson made these remarks during an appearance on CNBC’s “Squawk Box Asia” on Wednesday.

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Indium Corporation, a supplier to global electronics and chip firms, provides essential materials like gallium and germanium. Ross Berntson mentioned that there are approximately 10 factories capable of initiating gallium production at present. By activating these production units, there will be sufficient gallium available in regions outside of China.

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