China has implemented export controls on gallium and germanium-related items since August 1. Many articles have introduced the basic situation of these two rare metals. my country is a major producer of gallium and germanium, and they are key materials for many industries such as semiconductors. Therefore, this measure is believed to have a great impact on the global related industrial chain. Is this really the case? This article introduces the industrial application of gallium from the perspective of relevant practitioners and analyzes the supply issues at the bottom of the control storm. Written by He Jun and Wang Benzhong (Chengdu Xinzhongxiang Technology Co., Ltd.) In July 2023, the Chinese government announced that it would impose export controls on items related to the elements gallium and germanium starting from August 1. This announcement caused a huge uproar and attracted widespread attention and discussion. These two elements rarely appear in the public eye in the past. In fact, the consumption of gallium converted into pure metal form is only a few hundred tons per year (we think this estimate may be slightly lower, at least not including the recycled part), but the reaction caused by the news is greater than before - sanctions against individual entities. Public opinion believes that its potential impact is wider, showing that the Chinese government's anti-control measures and determination in relevant aspects have been upgraded. The new control measures are not indiscriminate tariffs, but export license controls, and their actual consequences depend greatly on the implementation (after approval, they can still be exported normally). However, no matter how the specific operation is, due to the current global market division of labor in related fields, it is very difficult to accurately strike specific countries, specific fields and specific entities, and the control measures still affect the entire related industrial chain. At present, China's crude gallium production accounts for more than 90% of the global share, which has a strong influence on the industrial chain. In just a few days after the news came out, the price of crude gallium exported from China soared by 27%. As practitioners in related fields, we are also very concerned about the impact of this gallium supply chain turmoil on the industry, including the recent impact, the reactions of all parties, and the long-term pattern that may be caused by the subsequent development of events. Gallium does not exist as a free element in nature, but exists in the form of trace compounds in bauxite and sphalerite. 丨Image source: wiki Industrial Applications of Gallium Due to its unique thermal, optical and electrical properties, the little-known gallium has many applications in the industry, including low-melting alloys, catalysts, optical glass, dental fillings, piezoelectric materials, sensors, ICs, microwave radio frequency, permanent magnets, photovoltaics, LEDs, power devices, etc. It is even difficult to have a truly complete list. Due to the small market size, gallium-related industries have formed a typical horizontally integrated global marketization model, which is interdependent and nested. Evaluating each application and possible substitution requires specialized and in-depth expertise, including technology and quantitative global market information, which is very difficult. However, if we start from the characteristics of its main application areas and observe from a market perspective, we can still get some relatively clear results. The most significant application of gallium-based materials is in the chip field. When ordinary people mention chips, they think of silicon materials. Indeed, silicon-based chips account for more than 90% of the entire industry. The rapid and predictable development of its related technical performance has profoundly and widely affected human society in the past few decades and has become the foundation of the information industry. However, silicon materials also have some inherent deficiencies. First, as a so-called "indirect bandgap" crystal material, the luminous efficiency is low; in addition, its bandgap is narrow and fixed, and difficult to adjust. Therefore, in the field of lighting optoelectronics, the so-called direct wide bandgap compound semiconductor materials currently used are mainly gallium nitride (blue and white light), gallium arsenide (red light) and indium phosphide (optical fiber low loss band). Gallium arsenide wafer | Source: matltech.com The crystal material characteristics of gallium-based materials also make them the basis of radio frequency devices. Radio frequency devices are basic devices for industries such as wireless communications and radar. Taking gallium arsenide radio frequency devices as an example, the basic manufacturing process is as follows: first, high-quality bulk single crystal materials are made, then cut into discs with a thickness of about 0.5 mm (called wafer substrates), and then a thin layer of gallium arsenide material is deposited and grown on the top surface of the substrate (called epitaxy), and then various processing procedures are performed on the epitaxial layer to make devices arranged on the upper surface of the wafer. Finally, most of the thickness of the substrate must be removed from the back to meet the requirements of heat dissipation and control of parasitic inductance. The only alternative to gallium arsenide in some applications (radar, base stations, etc.) is gallium nitride materials with stronger performance in some aspects. Gallium is still unavoidable, but gallium nitride devices do not currently use homogeneous substrates, so the amount used is much less. It is worth noting that gallium nitride devices are not currently suitable for all gallium arsenide radio frequency applications, such as radio frequency power amplifier chips in mobile phones. In addition, radio frequency and optoelectronic devices using gallium arsenide single crystal substrates have different quality requirements. China currently imports a large number of high-quality gallium arsenide single crystal substrates. In addition to the more "traditional" applications mentioned above, gallium is also related to a very important emerging field. This is power electronics (also known as power) devices. Compared with RF devices, power electronics devices have lower operating frequencies, larger areas, higher power levels, higher requirements for reliability and cost, and a larger market size. Gallium nitride power electronics devices (such as mobile phone chargers) have entered the consumer electronics market, but their manufacturing still uses substrates of other materials. Gallium oxide using a homogeneous substrate is the rising star of high-end power electronics devices and has been included in the control of the US government. Gallium nitride wafer substrates are the key foundation of another area that has attracted capital attention, namely white (blue) light lasers. They have also made great progress and are getting closer to large-scale commercial use. Overview of Gallium Metal Supply in China and the United States Gallium materials are extracted globally as a byproduct of aluminum production from bauxite. After Chinese companies entered the market in large numbers, gallium has generally been in a state of oversupply. It is currently estimated that China produces more than 90% of crude gallium (purity of 99.99%, commonly known as four nines) in the world. The price of crude gallium per kilogram fell from about 4,000 yuan to less than 1,000 yuan in 2012. It was after this that some entities outside China stopped producing crude gallium. In recent years, due to China's environmental protection requirements for related industries and supply chain fluctuations caused by the epidemic, the price of crude gallium has risen in the short term, but it has never reached the level of 4,000 yuan before 2012; even with the obvious growth in demand in recent years, coupled with the increase in the price of crude gallium caused by this export control, it is only a little over 2,000 yuan per kilogram. Looking back at history, this price is not high. Due to the horizontal integration model of the relevant industrial chain, the scenarios seen in various markets are very different. For China, the output of gallium materials is mainly driven by the demand of its own internal market, mainly consumed by the rapid growth of markets such as (NdFeB) permanent magnet materials, copper indium gallium selenide thin-film photovoltaic materials, and lighting optoelectronics. China also needs to import some higher-purity refined gallium, and price changes in crude gallium will affect the price of refined gallium. The added value from crude gallium to refined gallium is not too high, and there are no particularly significant technical barriers. We believe that this supply chain turmoil will further promote China's refined gallium purification industry. Gallium nitride semiconductor devices | Image source: dignited.com On the other hand, the United States is at the other extreme. They rely 100% on imports for gallium. Gallium-consuming industries that dominate China are not well developed in the United States due to cost reasons. The United States imports gallium-based materials, mainly gallium arsenide single crystal substrate materials, which are quite considerable and account for a significant proportion of global gallium consumption; there is also a portion of crude gallium and refined gallium. Due to the high tariffs currently imposed by the United States on Chinese gallium metal, the latter has dropped to less than half of the imports in the United States. Overall, the United States' direct dependence on gallium from China has dropped to a relatively low level. In addition, most of the materials used in gallium arsenide RF devices can be consumed and recycled during the manufacturing stage (this is also related to the environmental protection requirements for arsenic). In fact, one of the purposes of the United States's tax increase on Chinese gallium imports is to protect the entities that still exist in the United States that recycle gallium. Therefore, in the short term, the suppliers of high-end gallium arsenide crystal materials in Europe, Japan and other countries are mainly affected by China's export controls. The production capacity of these suppliers presents a global division of labor and layout, and it is not a simple matter to accurately count their supply chains and the logistics of gallium products. This can't help but remind people of the recent measures taken by some countries to cooperate with the United States to block my country's semiconductors. China and the United States both import large quantities of high-quality gallium arsenide single crystal substrates, whose process added value is far higher than the material value, are not sensitive to the current fluctuations in the price of crude gallium, so they will not cause fluctuations in supply. In fact, China has always faced certain supply risks in this field. The quality of its own related products is close to maturity, so this turmoil may promote the application of domestically produced gallium arsenide single crystal substrates in the RF field. In addition, China and the United States also import high-purity materials used for gallium epitaxial growth, including trimethyl gallium, high-purity metallic gallium, etc. The amount of gallium and bulk materials is smaller than theirs, and they account for a small proportion of the final product cost structure, and will not be greatly impacted. Similarly, Chinese users in this field also face certain supply risks, and domestic suppliers' technology is close to maturity, so export controls on gallium metal may promote its commercial application. However, due to the small market size, the willingness of capital to support is questionable. Gallium supply long-term pattern Next, let's talk about the long-term pattern of gallium supply. We have seen that gallium resources are not monopolized by China. In the field of RF devices, which is the most important for gallium-based materials, there is no visible alternative. People once imagined that silicon CMOS and silicon germanium (here involves another material included in export control) devices could significantly replace the share of gallium arsenide devices in the mobile terminal market, but the actual result is the opposite - the demand for gallium arsenide devices has increased with the development of the communications market. In addition to RF devices, there are currently no suitable alternative materials for gallium in such important industries as lighting and optoelectronics. On the other hand, it is economically unrealistic to further recycle gallium in final products (mobile phone chips, permanent magnet materials, PV films, etc.) in order to reduce dependence on gallium sources. Taking neodymium iron boron permanent magnet materials as an example, the recycling cost of neodymium, a rare earth element as the main component of the material, is not economical enough, and the market lacks the willingness to recycle it. Gallium is only added in trace amounts, so the recycling of gallium alone is even less economical. A typical mobile phone RF power amplifier chip contains only a few milligrams of gallium, which is worth less than a penny. Therefore, rebuilding the industrial chain foundation of crude gallium supply outside of China is an inevitable choice for some countries. According to our current price estimate, the cost of rebuilding the supply of crude gallium abroad will not be less than RMB 5,500 per kilogram, but it will not be too high. Many of the gallium materials listed above have small application scales and are not sensitive to large-scale changes in costs. Therefore, they will not be greatly affected and there is no need to discuss them too much. We are more concerned about some relatively large and cost-sensitive industries, such as permanent magnet materials, PV, lighting optoelectronics, and the emerging fields mentioned above, which are more dependent on the stability of gallium supply. After China's high-end RF materials industry has a technological breakthrough, it will also make the industry similar to many industries today that have lowered prices due to "involution". Unless China also adopts measures such as stricter environmental protection requirements, which leads to a significant increase in the cost of crude gallium refining, there will be no significant cost difference. For countries outside China, it is unrealistic to rely solely on government subsidies to maintain the market volume required by the industry. Trade barriers may appear, which will further increase the cost of downstream industries. In these industrial fields where China already has technical capabilities, they are already sensitive to costs, and such trade protectionism may trigger further trade protectionism. Overall, the development of gallium-based materials over the past few decades is a process of gradually moving from communications and military industry to industrial production and daily life amid people's expectations and unremitting efforts. Demand is growing, and the supply chain is becoming more market-oriented. China is the global manufacturing center and has a significant impact on many industrial chains. The horizontal integration and division of labor of the industrial chain on a global scale is the result of globalization and a force that maintains globalization. The relevant Chinese agencies have chosen germanium and gallium, two rare mineral resources, to implement regulation, and they must have conducted corresponding research and weighed the pros and cons. However, overall, the industrial chain related to these two elemental materials is not essentially different from other industrial chains. China's countermeasures are forced countermeasures and are warnings. This will be reflected in the subsequent specific operations and impacts. The development of various applications of gallium-based materials may be affected to a certain extent in the short term, but it will not affect the long-term development trend of gallium-related industries. This article is supported by the Science Popularization China Starry Sky Project Produced by: China Association for Science and Technology Department of Science Popularization Producer: China Science and Technology Press Co., Ltd., Beijing Zhongke Xinghe Culture Media Co., Ltd. |
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