Title: China’s New Mineral Export Restrictions Impact Global Sourcing Strategies
In recent developments within the ongoing trade tensions between the U.S. and China, attention is drawn to the importance of diversifying the supply of critical raw materials, specifically rare earth elements (REEs), for American high-tech manufacturers.
China recently imposed export restrictions on gallium and germanium, two metals crucial in semiconductor and electric vehicle production. These actions were widely interpreted as a response to the U.S. government’s limitations on exporting advanced semiconductors and chip-making equipment to China.
China currently supplies approximately half of gallium and germanium used by U.S. manufacturers and a substantial majority of the global supply (94% for gallium and 83% for germanium). Sandeep Rao, head of research at Leverage Shares, a provider of exchange-traded products (ETPs) linked to commodity prices, suggests that further export restrictions on critical minerals from China are anticipated.
China also dominates the supply of 17 rare earth metals, controlling over a third of global reserves and a significant portion of current mining and processing operations. While these elements are not inherently scarce, China’s dominance in the market, coupled with slow developments in other nations, creates a de facto rarity.
The recent restrictions on gallium and germanium, although not technically rare earths, are crucial for producing advanced microchips utilized in defense systems and renewable energy equipment. Rao speculates that these measures are connected to the U.S. limiting the export of artificial intelligence (AI) technology to China.
Economic considerations may also underpin China’s actions. Rao points out that the market is currently oversupplied with gallium and germanium, leading to price decreases throughout the year. Chinese restrictions could be an effort to halt sales at lower prices.
Despite concerns within the U.S. industry and government about insufficient domestic critical mineral supplies, Rao suggests that China’s leverage may diminish over time. Recycling processes already recover around 30% of annual gallium and germanium supplies, with potential for further expansion. A similar situation applies to many REEs, which are found in various discarded equipment.
While recycling presents a solution, Rao acknowledges that it is labor-intensive and not yet viable in the U.S. at its current efficiency levels. Research is ongoing at MIT and Stanford to improve recycling technologies.
Rao envisions a reduced reliance on China for REEs and other metals in the coming years. Countries like Vietnam, Australia, and the U.S. are making substantial strides in production and mining. The Mountain Pass Rare Earth Mine and Processing Facility in California has reopened and currently supplies 15.8% of the world’s rare earth production.
Despite these promising developments, Rao emphasizes the continued demand for REEs, highlighting the need for a diversified supply chain to prevent critical materials from being impacted by geopolitical tensions.
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