Chinese Export Restrictions Cause Spikes in Technology Metal Prices
Since China’s export controls took effect, gallium and germanium exports have come to a standstill. Prices of these raw materials, and indium, have risen in recent weeks.
In July 2023, we reported on China’s planned export controls on the technology metals gallium and germanium. These came into force on August 1, after which date Chinese companies required a license from the Ministry of Commerce to export these two technology metals. The requirements apply to so-called dual-use goods that can be used for both military and civilian purposes – for example, in the manufacturing industry. China says it implemented the new rules for national security reasons.
As a result of the restrictions, export volumes from the People’s Republic fell sharply in August and were at times zero for certain forms of these raw materials. One reason for the shortfalls is likely the long lead time from application to licensing for exports, which can be as long as 60 days. This development led to a shortage in the gallium market at a time of increased demand.
Values of Technology Metals Rise at Different Rates
The full extent of the Chinese restrictions remains to be seen due to the long processing times for export applications, but the early effects on commodity trading are already becoming apparent. New information is available for buyers of and those interested in strategic metals as tangible assets. For example, the prices of gallium and germanium rose after the announcement of the export controls in July. Since the export restrictions came into force on August 1, prices of both metals have continued to rise, in some cases by more than 40 percent.
The price of another technology metal, indium, has also risen sharply since July. The biggest price increase among all three metals was recently recorded for gallium, which in October reached its highest value since February after an increase of more than 30 percent. Indium’s price also rose by just under 30 percent. The increase in the value of germanium was at least 9 percent.
“The price increases for metals are only partly the result of an increase in market demand,” explains Matthias Rüth, Managing Director of the raw materials supplier TRADIUM GmbH. “One factor that plays an equally important role is China’s supply difficulties. Chinese companies are hardly able to export, if at all. In the medium term, I expect the raw materials market situation will calm down.”
Tradium 1 a gen CCCC
China Foresees Further Export Restrictions
Industry observers view the export licenses required by the People’s Republic as a response to current U.S. export restrictions on latest-generation semiconductor chips. And the U.S.-China trade dispute seems to be getting worse: last Friday, China announced export controls on another critical resource: graphite, a battery material that’s important for electromobility. Licenses for graphite exports will be required as of December 1, as the industry news service Rawmaterials.net has reported. China is the world’s largest producer of graphite, gallium, and germanium.
According to analysts, however, it’s unclear how great the impact of these new measures will be, Reuters reports. Export restrictions on other raw materials, such as rare earths, are also conceivable.
Understanding the Volatility of Strategic Metals
First Steps
Many people purchase strategic metals as alternative physical assets. However, raw material prices can fluctuate, just like stocks or funds. In this interview, commodities expert Thomas Grob of TRADIUM explains what moves the prices of metals.
What is volatility and how does it show up in strategic metals?
Thomas Grob: Volatility is the range of fluctuation in prices or rates. Are they rising? Are they going down? And by how much do the highs and lows vary? Some of you have probably heard the term “volatility” used in reference to the stock exchange. If a stock rises or falls conspicuously, it’s called volatile. The term also applies to raw materials such as strategic metals, whose prices are often in motion.
What causes prices to move on the raw materials markets?
Thomas Grob: If there’s a shift in the supply of and demand for raw materials, their prices will change. An oversupply of a physically available material, usually causes prices to fall. However, if metals are in short supply and there are bottlenecks, this is referred to as an undersupply. This situation is typically accompanied by rising prices.
As a rule, volatility skyrockets when fundamental changes occur. The Covid-19 years are an excellent example of this. The global supply chains for strategic metals like gallium, germanium, and rare earths kept breaking down, and supplies collapsed. This caused prices of these increasingly scarce raw materials to rise sharply. Russia’s attack on Ukraine in February 2022 was a milestone in the price development of the platinum group metal palladium. Russia is one of the most important palladium-producing countries. After sanctions were imposed on the country, there were shortages and price spikes for the metal, which is mainly used in catalytic converters.
Wars and pandemics are big reasons for price volatility. Are there less extreme reasons?
Thomas Grob: Let’s stay with the platinum group metals. In South Africa, one of the world’s main suppliers, there are persistent problems with the domestic power supply. Electricity often has to be cut off for hours at a time. It’s easy to imagine the impact this has on the energy-intensive mining and processing of these metals. Less platinum, palladium, and iridium are coming onto the market than expected and the supply is becoming tighter.
Often, there are also political decisions behind this. At the beginning of 2023, the EU Parliament sealed the deal on the phasing out of combustion engines after 2035. Metals such as palladium, which are used in catalytic converters, are therefore in danger of losing their importance in the long term. In the short term, the EU decision won’t impact purchasing volumes, as cars with combustion engines will continue to be built. Nevertheless, prices have moved downward. But it also works the other way around: the German federal government has spoken out in favour of transitioning away from fossil fuels to renewable energy sources. This suggests that demand for rare earths is likely to increase in the long term. These metals are used in large quantities in permanent magnets, without which many wind turbines wouldn’t run. The mining and processing of rare earths is heavily concentrated in China, and Europe’s dependence on raw material imports is correspondingly high. This limitation could have an impact on prices.
Rare Earths in Cars – From Spark Plugs to Air Conditioning Systems
November 2023 | News
Rare earths are primarily known for their use in electric vehicle motors. However, the metals are also present in conventional vehicles. Below, we summarize the components where they’re found.
The raw material group of rare earth metals is essential for the expansion of electromobility and the global transition to cleaner transportation. However, these strategic metals aren’t used only to make the motors in battery-electric cars, but also a host of other components in diesel- and petrol-powered vehicles.
Equipped With Rare Earths From Front to Back
The industry news service Rawmaterials.net has researched the diverse fields of application for rare earths in conventional cars. For example, neodymium or terbium are used in permanent magnets in small motors to drive window regulators and air-conditioning systems. The cerium oxide in polishing agents gives car windows their shine and reduces CO2 emissions in diesel fuels. Yttrium is found in the nickel-yttrium alloys used in modern spark plugs and gives them a longer service life.
While the demand for rare earth elements is increasing due to the expansion of electromobility, most cars are still powered by internal combustion engines (ICE). Worldwide, there are 1.3 billion ICE cars compared to 26 million electric cars. The EU has permitted cars with conventional drive systems to be sold within the EU until 2035, so large quantities of strategic raw materials will continue to be needed for internal combustion engines for a long time to come.
Rare Earths: Critical Raw Materials
According to various economic forecasts, the demand for rare earths will continue to rise steadily. However, since the raw versions of these metals are available only in limited quantities, the EU has classified their supply as critical. This scarcity makes them an interesting physical asset for private buyers. Read our article “Precious Spice Metals for High-Tech Products” to learn about some of the non-automotive uses for strategic metals.