China move to curb chipmaking material exports escalates supply worries (updated)

AXT

04/07/2023 06:33

(Recasts to add quotes, share prices, industry reactions)
    By Amy Lv and Brenda Goh
       BEIJING/SHANGHAI, July 4 (Reuters) - A move by China to
restrict exports of some metals widely used in semiconductors,
electric vehicles and high-tech industries has ramped up a trade
war with the United States and could potentially cause more
disruption to global supply chains. 
    Companies are rushing to react to the abrupt news announced
on Monday, with one U.S. semiconductor wafer manufacturer
quickly saying it was applying for export permits to assure
investors. A China-based germanium producer told Reuters
enquiries from abroad and prices had surged overnight. 
    China's commerce ministry said it would from Aug. 1 control
exports of eight gallium products and six germanium products to
protect its national security and interests, a move analysts saw
as a retaliatory action in response to escalating efforts by
Washington to curb China's technological advances. 
    "China has hit the American trade restrictions where it
hurts," said Peter Arkell, chairman of the Global Mining
Association of China.
    "Gallium and germanium are just a couple of the minor metals
that are so important for the range of tech products and China
is the dominant producer of most of these metals. It is a
fantasy to suggest that another country can replace China in the
short or even medium term," Arkell said. 
        Gallium, germanium and other minor metals are widely
used in wide-bandgap semiconductors in communication equipment,
solar panels and electric vehicles. 
    China is the dominant producer of gallium and germanium. In
2022, top importers of China's gallium products were Japan,
Germany and the Netherlands, news website Caixin said, citing
customs data. Top importers of germanium products were Japan,
France, Germany and the United States, it said. 
    
    EXPORT PERMITS, DISRUPTION WORRIES 
    U.S. semiconductor wafer maker AXT Inc  AXTI.O , which has
manufacturing facilities in China, said on Monday its Chinese
subsidiary Tongmei would immediately apply for permits to keep
exporting gallium and germanium substrate products from China.
    "We are actively pursuing the necessary permits and are
working to minimize any potential disruption to our customers,"
said AXT Chief Executive Officer Morris Young. 
    A manager at a China-based germanium producer said his
company had received several queries from buyers in Europe,
Japan and the United States hoping to stockpile the product
ahead of the export controls taking effect. The buyers were
anticipating it could take as long as two months to obtain
license permits for exports. 
    "Offer prices in the domestic market and the export market
have increased to 10,000 yuan ($1,380) per kg and over $1,500
per kg, respectively," he said. 
    While the industry had expected to see some export controls
for these metals, the timing had caught it by surprise, he said.
    "Some downstream users have locked in long-terms sales
contracts for the coming two to three years and they are vexed
about a possible jump in raw material prices, as it raises their
production costs and may cause them losses," he said, declining
to be named citing the sensitivity of the matter. 
    Shares in some metal producers rose on Tuesday, with Yunnan
Lincang Xinyuan Germanium Industry Co  002428.SZ  jumping 10% by
the daily upper limit, and Yunnan Chihong Zinc & Germanium Co
 600497.SS  climbing 7%. 
        
  
    ESCALATION RISK
    China's controls come as Washington mulls new restrictions
on the shipment of high-tech microchips to China, following a
series of curbs in recent years. 
    The United States and the Netherlands are also expected to
further restrict sales of chipmaking equipment to China's
chipmakers this summer, part of efforts to prevent their
technology from being used by China's military. 
    Beijing last made a retaliatory move against U.S. pressure
on chips in May, when it banned some domestic sectors from
purchasing products from U.S. memory chipmaker Micron  MU.O . 
    Jefferies analysts said they saw the export controls as
China's second and much bigger countermeasure in the U.S.-China
tech war after the Micron ban, and also as a likely response to
a potential U.S. tightening of an AI chip ban. 
    "The risk of a rapid escalation of U.S.-China tension is not
small," they said. 
    "If this action doesn't change the U.S.-China dynamics, more
rare earth export controls should be expected." 
    
    ($1 = 7.2326 yuan)
    

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BREAKINGVIEWS-China’s rare earths swipe has more bark than bite 
   urn:newsml:reuters.com:*:nL4N38Q0LL
FACTBOX-Where are strategic materials germanium and gallium
produced?     urn:newsml:reuters.com:*:nL4N38Q02R
QUOTES-What people are saying about China's chipmaking export
controls     urn:newsml:reuters.com:*:nL1N38Q08T
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 (Reporting by Amy Lv in Beijing and Brenda Goh in Shanghai;
Additional reporting by Siyi Liu in Beijing, Kentaro Sugiyama in
Tokyo, Joyce Lee in Seoul, and Ben Blanchard in Taipei; Editing
by Tom Hogue)
 ((brenda.goh@thomsonreuters.com; +86 (0) 21 2083 0088; Reuters
Messaging: brenda.goh.thomsonreuters.com@reuters.net))