© Reuters.
Written by Ben Blanchard and Jean Schwartz
TAIPEI (Reuters) – Volkswagen said on Thursday it was monitoring metals markets after China imposed export restrictions on two trace metals used in semiconductors and electric cars, while some chipmakers played down fears of shortages.
Concerns are growing that more restrictions on strategic exports including rare earth elements could come after a top Chinese trade advisor said on Wednesday that restrictions on gallium and germanium, effective Aug. 1, were “just the beginning.”
China’s surprise announcement on Monday that it would impose restrictions from Aug. 1 on exports of some gallium and germanium products, which are also used in electric cars and fiber-optic cables, sent companies scrambling to secure supplies and drive up prices.
The move, which came just days before US Treasury Secretary Janet Yellen arrived in Beijing on Thursday for a visit, has also prompted more companies to rethink their reliance on the world’s No. 2 economy.
Volkswagen, which relies on gallium and germanium for auto products, said it was “ready to take action with its partners if necessary” but gave no details. A spokesperson for the German automaker said that metal will play a role in autonomous driving functions in the future.
Experts said alternative sources of gallium cannot be put into operation before the restrictions go into effect next month and current supplies will only last for months.
“Inventories outside of China are only six months old at best, so this is going to take its toll fairly quickly,” said Alastair Neal, director of the Critical Metals Institute.
He added that building the facility would take two years and would require investment that might not be rewarded if China changed its stance in the meantime.
“The challenge is if you go this route and then China lifts the ban, you might be stuck with a white elephant.”
A US Department of Defense spokesperson said Thursday that the US Department of Defense has a strategic stockpile of germanium, but does not currently have stockpile reserves of gallium.
The export restrictions are likely to further strain relations between the United States and China as the two countries vie for dominance in semiconductor and defense technologies.
Both sides are skeptical Yellen’s four-day visit will de-escalate the situation, with officials accepting that both countries have placed protection of national security above economic relations.
“If the talks between the two sides go well, many restrictions can be eased, but if the talks go badly, the two sides may impose more sanctions after Yelin returns home,” said Liao Xinyu, an analyst at Capital Securities Corp.
Some industry players said the restrictions could leave China with a glut of two metals, weighing on domestic prices even as costs abroad rose this week.
Germanium is used in high-speed computer chips, plastics, and in military applications such as night vision devices, as well as satellite image sensors. Gallium is used in radar and radio communication equipment, satellites, and LED lights.
Some of the larger chipmakers see China’s gallium export controls as a warning shot about the economic pain the country could cause.
But if prices rise as the restrictions are in place, companies will have another reason to change supply chains.
Taiwanese semiconductor company WIN, which uses gallium for optoelectronic devices, told Reuters that only a “small number” of substrates are purchased from China, and most of its supplies come from Germany and Japan.
Taiwan’s TSMC, the world’s largest chip maker, said it did not expect any direct impact on its production from the moves.
Taiwan is a major producer of chips used in everything from smartphones and cars to fighter jets, and supplies companies such as Apple (NASDAQ:) and Nvidia (NASDAQ:).
Chip maker NXP Semiconductor (NASDAQ:) does not see any material impact on its business. NXP makes some chips for the automotive and telecom sectors using gallium or germanium.