A make-or-break year for non-Chinese gallium market | 2024 preview

With China’s stringent implementation of its gallium export controls persisting through to the end of 2023 at least, 2024 looks set to become a make-or-break year for gallium market participants outside China

Non-Chinese stocks of gallium are reportedly running low with limited production outside China unable to match consumption.

But while some market participants are hopeful that China will relax the implementation of its export controls, to allow commercially significant quantities of standard-grade gallium metal to leave, others expect the controls to remain in place throughout most of 2024.

In its outlook for the year ahead, the Deloitte consultancy named gallium among the metals that will be subject to regional shortages in 2024.

“Multiple regions could run short of gallium and possibly germanium in 2024 and may see shortages of rare earth elements (REEs) and more,” Deloitte said it its outlook report.

Prices rise to end of 2023, supply tightness worsens

Gallium prices increased markedly through December, with market participants reporting that Japanese consumers were outbidding their European counterparts for the limited stocks of gallium held there.

Fastmarkets’ assessed price for gallium 99.99% Ga min, in-whs Rotterdam was $500-600 per kg on Friday December 15, stable on the previous session, on December 13, but up 9% on the $460-550 per kg recorded at the start of December, and up 114% on the $250-265 per kg just before China’s export controls were announced, on June 30.

Japan has long been a major gallium consumer, particularly its high-performance semiconductor sector, which uses gallium metal is in the form of gallium arsenide (GaAs) wafers.

Japanese and other consumers are competing for an increasingly finite supplies of the metal, but Japan is the major destination for Chinese exports of gallium. Since the start of 2022, the country has directly imported some 51.4% of the wrought gallium exported from China, while Germany was the second-largest export destination for China and took in 35.2% of the total it shipped.

“[The price increase] seems to be because the inventory held by traders is also decreasing and the number of offers is decreasing,” a Japanese source told Fastmarkets.

“Among these, I think users who have particularly low raw materials inventory have to buy, even if it is considered to be higher than the market price,” the source added.

The source also agreed that the strong demand in Japan was mainly being driven by the semiconductor industry.

“We heard that demand from the compound semiconductor industry is, indeed, currently good,” a Chinese gallium exporter said.

Japan is one of the world’s largest producers of semiconductors, home to fabrication plants owned by Japanese, American, and Taiwanese firms.

Responding to China’s export controls, Japan’s minister of economy, trade and industry, Yasutoshi Nishimura, said the country was looking at the “status of enforcement and the supply and demand,” and that it would “consider measures such as the diversification of supply sources, recycling and conservation of resources.”

The country has also introduced tax breaks for its semiconductor sector.

Along with semiconductors, GaAs is used in opto-electronic devices.

Gallium metal is also used as an additive in high-performance sintered neodymium iron boron magnets to improve the performance of magnets at high temperatures inside the engines of electric vehicles.

Other uses include those in the form of gallium nitride (GaN), gallium phosphide, triethyl gallium, and trimethyl gallium, among others.

GaN has important applications in telecommunications where it is used in 5G mobile network masts and in the charging infrastructure for electric vehicles.

According to a Western market participant, the semiconductor industry is likely to be willing to outbid alternative consuming sectors, owing both to the profit margins available for high-performance chips and the lack of feasible substitutes for GaAs producers.

“If your business is making GaAs wafers, then you need gallium,” the market participant said.

The market was generally divided about how long China would sustain its current export controls, with a second Western market participant predicting that the export control would be loosened to allow material to be exported from China in the short-to-medium term.

The first Western market participant was less optimistic, however, predicting that the tight implementation of the controls will only begin to be loosened toward the end of 2024.

Should material not begin to flow out of China, the consequences could be damaging, the market participant said.

“A lot of companies could be hurt,” he said.

And the Japanese source agreed.

“Some users will be still okay, but others will run out of inventory,” the source said.

A separate impact of the continued implementation of China’s export controls would be that traders outside China will not be able to take positions on gallium, or hold inventories, market participants told Fastmarkets.

This is because the export control requires buyers to disclose end-user details for specific shipments, meaning traders would need to secure buyers before themselves buying material from China.

Trader inventories have helped mitigate the immediate impact of the export controls, with a number of trading houses having built stocks of the metal before the controls officially came into effect, Fastmarkets understands.

Speaking immediately after the export control was announced, German trading house Tradium’s chief executive officer Matthias Rüth told German newspaper  Handelsblatt: “With our stocks, we can reliably supply the German industry in the medium term.”

Potential new production

With China accounting for around 98% of the world’s gallium production, market participants are also looking to new production sources outside of the country for possible reprieve.

But Fastmarkets has been told that new gallium production plants would take about 12-18 months to bring online.

Additionally, experts have said that any initial investment in new gallium production would require a price support mechanism to offset the risk of price volatility that contributed to the closure of Europe’s last primary gallium production facility – Ingal Stade – in 2016.

The producer closed, according to filings by co-owner 5N Plus, around the time Fastmarkets’ twice-weekly price assessment for gallium 99.99% Ga min, in-whs Rotterdam had reached an all-time low of $110-130 per kg on August 19, 2016.

Several gallium production projects outside China are currently undergoing viability testing, Fastmarkets understands.

In the United States, Trafigura-owned Nyrstar is exploring a $150 million germanium and gallium recovery and processing facility at its zinc smelter in Tennessee.

Documents seen by Fastmarkets suggest that in the financial year 2024, via its manufacturing capability expansion & investment prioritization (MCEIP) office, the US Department of Defense has earmarked some $29 million to support gallium and germanium extraction.

In Europe, Greek energy and metals conglomerate Mytilineos, which has produced gallium on a non-commercial scale in the past, is revisiting the process of gallium production and is aiming to lower costs and improve quality.

The company could produce gallium as a byproduct of its bauxite refining process.

But Mytilineos told Fastmarkets that the viability of the project relies on support for the alumina sector and that gallium production outside of China would, in turn, require price support.

“China could easily decide to flood the global market and put everyone out of business overnight,” a company spokesperson said.

The need for a price-support mechanism also appears to have gained ground in the US, with the House of Representatives Select Committee on Strategic Competition between the US and the Chinese Communist Party recently recommending that Congress authorize the creation of a critical minerals “Resilient Resource Reserve.”

Such a reserve would be used to sustain the price of a critical mineral when prices fall below a certain threshold and would be replenished through contributions from companies when prices are “significantly” higher, according to the recommendations.

The fund would target critical metals where there is high price volatility, low US domestic production and import dependence on China.

Cobalt, manganese, light and heavy rare earths, vanadium, gallium, graphite, germanium and boron are all considered critical minerals that fall under that category, Fastmarkets understands.

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