Supply chain diversification may be encouraged by China’s restrictions on metal production

Luisa Moreno, President of Defense Metals Corp, expects China to impose additional restrictions on metal exports, potentially including rare earths. Rare earths play a critical role in high-tech consumer products like smartphones and military equipment such as radar systems. Moreno stated in an interview on CNBC’s “Street Signs Asia” that China’s control of more than 85% of rare earth production makes it likely for export restrictions to extend to this material.

In the past, China halted rare earth exports to Japan in 2010 amid a territorial dispute and threatened to do the same to the U.S. in 2019. Counterpoint’s Brady Wang believes that although the impact of metal curbs may not be significant in the short term, potential curbs on other critical materials could pose longer-term problems. Randall from Intralink added that China needs to be cautious, as export restrictions could harm Chinese companies by losing foreign customers.

One manufacturer of key materials reported receiving numerous inquiries from customers and noted increased activity in the market in response to the upcoming gallium production curbs in China. Ross Berntson, President and COO of Indium Corporation, stated on CNBC’s “Squawk Box Asia” that they are engaging with the market to secure supply, and with the activation of approximately 10 factories, there will be ample gallium available in other regions besides China. Indium Corporation supplies gallium and germanium to global electronics and chip firms.

While China is the major producer of gallium and germanium worldwide, other countries also contribute to their production. Russia, Ukraine, Japan, and South Korea produce gallium, according to a 2021 study by the Indian government. Canada, Germany, Japan, Slovakia, and the U.S. recycle gallium from new scrap. Belgium, Germany, and Russia are capable of manufacturing germanium based on data from the U.S. Geological Survey. The U.S. can also recycle new and old scrap for germanium. John Strand of telecomms consultancy Strand Consult emphasized that gallium and germanium are not unique metals and that China’s dominance in their production helps keep their prices down. Clete Willems, a partner at law firm Akin Gump Strauss Hauer & Feld, believes that even with potential crackdowns, the impact would primarily be on prices rather than overall supply.