\n
\n \u201c<\/span> \u201cThis is no bouquet of flowers for Janet\u2026The timing and symbolism could not be more clear to just about everybody in Asia, if not the rest of the world.\u201d \u201d<\/span>\n <\/p>\n
\n \u2014 Byron King, Paradigm Press<\/span>
\n <\/small><\/p><\/div>\n<\/p><\/div>\nThe Ministry of Commerce in China said it made the move to \u201csafeguard national security and interests,\u201d according to a translated version of the July 3 announcement. <\/p>\n
Overall, this is a \u201cwarning flare\u201d because among the elements in the Periodic Table, \u201cChina easily dominates the production and supply chain for most of the metals,\u201d said King.<\/p>\n
Why now?<\/h2>\n
The move follows U.S. export restrictions on advanced semiconductors and chip-manufacturing equipment to China, which are aimed at preventing American technology from boosting China\u2019s military power.<\/p>\n
China\u2019s gallium and germanium exports restrictions are a way to \u201clet the world know \u201cdirectly or indirectly, that those are two pretty important elements that are used in the manufacturing\u201d of computer chips, said Luisa Moreno, president of Defense Metals Corp.
\n DFMTF,
\n +1.80%<\/bg-quote>,<\/span>
\n a junior mining company developing rare earths deposits in British Columbia, Canada.<\/p>\nThe U.S. is investing significantly in the manufacturing of chips, so even though there may not be significant imports of these two materials right now, this could have a bigger impact in the future, she said.<\/p>\n
China had reportedly halted exports of rare earth elements to Japan in 2010 during a dispute over islands that both countries claim. However, at the time, China denied that it had limited rare earth exports to Japan. <\/p>\n
The Biden administration, meanwhile, is considering new restrictions on exports of artificial-intelligence chips to China, The Wall Street Journal reported on June 27, citing people familiar with the situation. <\/p>\n
\u201cChina apparently does not like the news that the Biden administration is considering a wider semiconductor chip ban and decided to ban the export of gallium and germanium, which are used in semiconductors, 5G base stations, and solar panels,\u201d said Louis Navellier, founder of Navellier & Associates, in a recent note.<\/p>\n
China\u2019s announcement came just ahead of Yellen\u2019s trip to China so it appears that China made this move because it wants to negotiate with Yellen, said Navellier. \u201cAlthough the U.S. and its allies depend on China for these critical minerals, China needs Western technology such as lithography machines to produce high-performance chips,\u201d he said.<\/p>\n
On Friday, in a meeting with Premier Li Qiang, Yellen said the U.S. wants to engage in economic competition that would benefit both countries over time, The Wall Street Journal reported. <\/p>\n
What are germanium and gallium?<\/h2>\n
China\u2019s decision has raised questions over the importance of the two elements and exactly what germanium and gallium are.<\/p>\n
\u201cChina is employing a \u201ccapability play\u201d since it has become a crucible of products and parts to much of the world, particularly the Western Hemisphere,\u201d said Sandeep Rao, senior researcher at Leverage Shares.<\/p>\n
China produces the majority of the world\u2019s gallium \u2013 about 80%, according to the Critical Raw Materials Alliance. China is also responsible for around 60% of the world\u2019s production of germanium. <\/p>\n
China\u2019s \u201ccapability play,\u201d however, is also \u201ca high-risk\/high-loss play\u201d since there\u2019s \u201cample impetus to diversify away from reliance on Chinese production,\u201d said Rao. He said that India and Brazil, for example, are \u201cstrong contenders for diversification targets\u201d along cost and volume lines.<\/p>\n
Germanium is a hard, grayish-white metalloid, which is defined as having properties of metals and non-metals, while gallium is a soft, silvery metal. Both are produced as byproducts of some base-metals production such as zinc, and both are used in computer chips, solar panels and have military applications.<\/p>\n
They have been widely referred to as rare earth elements, but there are officially 17 rare earth elements, according to Geology.com, and the two materials are not listed among them. <\/p>\n
Supply threat?<\/h2>\n
Still, volume-wise, the amount the U.S. imports is relatively small.<\/p>\n
The U.S. Geological Survey reported that U.S. imports of germanium metal for consumption totaled an estimated 14,000 kilograms in 2022, while consumption that year was at an estimated 30,000 kilograms. <\/p>\n
For gallium, domestic imports for the metal were estimated at 12,000 kilograms last year, while consumption was at a reported 18,000 kilograms. <\/p>\n
Overall, these two materials are rare, but are not very rare, Rao said, and the amounts used in manufacturing are \u201cquite small.\u201d<\/p>\n
\u201cThere should be enough supply in the near term while manufacturers review the effects of these curbs, choose other materials or diversify away from China,\u201d he said.<\/p>\n
But China\u2019s restrictions can still lead to higher prices as the U.S. and others deal with supply issues.<\/p>\n
The U.S. can try to stockpile supplies, but then prices may go out of control, said Defense Metals Corp.\u2019s Moreno. If prices go up significantly, then companies would have to start thinking about whether the products they\u2019re manufacturing with these materialsstill make economic sense, she said.<\/p>\n
\u201cIt becomes tricky to deal with [these] sorts of bans or restrictions of sales of rare metals,\u201d said Moreno.<\/p>\n
Investing<\/h2>\n
Given that gallium and germanium are produced as byproducts of some base metals, it would be difficult to find a \u201cpure play\u201d way to invest in these materials, Moreno said. <\/p>\n
She did point out, however, that Canada\u2019s Teck Resources Ltd.
\n TECK,
\n +4.97%<\/bg-quote>
\n is the biggest germanium producer in North America.<\/p>\nThe playing field for investing in rare earths, meanwhile, appears a bit wider.<\/p>\n
Even then, Leverage Shares\u2019s Rao warned that investing into a single rare earth metal would be \u201ca risky and high tactical proposition,\u201d as various rare-earth metals have \u201chigh substitution potential by other \u2018less rare\u2019 rare earths.\u201d<\/p>\n
Broad sector rare-earth plays include the VanEck Vectors Rare Earth\/Strategic metals exchange-traded fund
\n REMX,
\n +2.04%<\/bg-quote>,<\/span>
\n and it gives investors exposure to rare-earth metal companies, he said.<\/p>\nAmong single-stock rare-earth plays, existing players include Canada\u2019s Neo Performance Materials Inc.
\n NOPMF,
\n -3.75%<\/bg-quote>
\n and U.S.-based Freeport-McMoRan Inc.
\n FCX,
\n +1.93%<\/bg-quote>,<\/span>
\n said Rao. Long-term plays include India\u2019s National Aluminum Company Ltd.
\n 532234,
\n -1.86%<\/bg-quote>,<\/span>
\n Hindalco Industries Ltd.
\n 500440,
\n -0.82%<\/bg-quote>,<\/span>
\n Steel Authority of India Ltd.
\n 500113,
\n -1.06%<\/bg-quote>
\n and Tata Steel Ltd.
\n 500470,
\n -0.93%<\/bg-quote>.<\/span>\n <\/p>\n<\/p><\/div>\nRead the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"China will restrict the world\u2019s access to gallium and germanium, requiring buyers of the two rare metals to apply for permits starting next month, in a move that highlights the country\u2019s dominance as the provider of many materials needed to create much of the technology used by consumers around the globe. The decision came just […]<\/p>\n","protected":false},"author":1,"featured_media":33027,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-33026","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\n
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