China’s control over exports poses a threat to the world’s biggest buyer of gallium

China's recent decision to regulate the exportsrelated to gallium has led to a frenzy of hoarding specialty semiconductor wafers made from this metal. The surprise announcement is affecting Freiberger Compound Materials, the leading buyer of gallium, as the company heavily relies on Chinese suppliers to fulfill its gallium requirements for manufacturing wafers used in mobile phone radio signal amplifiers and optical electronics.

Due to China's unexpected announcement to control the export of gallium and germanium products starting August 1, Freiberger Compound Materials finds itself in the midst of turmoil. As a major consumer, the company accounts for 10 percent of global gallium output.

In the market for gallium arsenide wafers for smartphone power amplifiers, Freiberger competes against smaller Chinese manufacturers and the Japanese firm Sumitomo Electric, with yearly sales of $77–$88 million and a market share of 65 percent.

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Reuters cited, Michael Harz, the CEO of Freiberger Compound Materials, expressed concern over the current situation in the industry, stating that it has caused significant unease among their clients. As a result, there has been a noticeable increase in orders placed to raise inventory levels. He further added that currently the company has several months' worth of gallium in stock because it has long anticipated some form of trade crisis and has little else it can do to react.

What is Gallium and its importance?

Gallium finds widespread application in various industries, including the production of LEDs and compact mobile phone adapters. Gallium ispresent in trace levels in bauxite and zinc ores, and gallium metal is created during the bauxite processing step in the production of aluminum. According to the European business organisation Critical Raw Materials Alliance (CRMA), China produces over 80% of the world's raw materials.

Gallium is naturally found in small amounts within bauxite and zinc ores, and it is during the bauxite processing phase in aluminum production that gallium metal is derived. The Critical Raw Materials Alliance (CRMA), a European business organization, highlights that China holds a significant global dominance in the production of raw materials, specifically accounting for over 80 percent of the world's output.

The material holds significant importance for Electric Vehicles (EVs) due to its exceptional power-handling capabilities without generating excessive heat, playing a crucial role in regulating the flow of electricity to and from the EV's battery pack.

China to impose dominance through export control

Some mineral experts predict that China's decision to impose controls on gallium and germanium can potentially disrupt the supply chain for automakers. This comes at a time when the auto industry is recovering from the global semiconductor shortage caused by the pandemic, which had previously forced automakers to halt production of certain models.

Over the past ten years, Chinese gallium businesses have eliminated the majority of competitors from the market by undercutting them on price, making the automakers worry about their reliance on a metal that has been seen as a game changer for electric vehicles.

According to CEO Harz, his Chinese suppliers are cooperating with the authorities to obtain the necessary export permits, although there is no verified information available at the moment. However, they anticipate that supplies will cease on August 1 when the export restrictions come into effect and resume approximately a month later once license requests are approved. Additionally, Harz rejects the notion that China will disrupt gallium trade in the coming years, as it will have a detrimental impact on its own electronics industry, as cited by Reuters.