China imposed strict export controls on two key semiconductor materials, germanium and gallium, in 2023, a move that has since reverberated across global markets.

These semiconductor materials are critical to the production of advanced processing chips and military optical hardware, leading to potential shortages in chipmaking capacity, with prices for germanium and gallium reported to have nearly doubled in Europe over the past year.

The Chinese government introduced the restrictions in response to controls imposed by the US on the sale of advanced chips and chipmaking equipment to China, citing "national security and interests". China is known to play a major role in the supply of these semiconductors, producing 98% of the world's gallium and 60% of its germanium, which shows how reliant Western industries are on Chinese exports of these semiconductors.

Since the implementation of the controls, the availability of these materials outside China has been sharply reduced. Gallium exports, for example, have fallen by about half. A senior executive at Tradium admitted that the amount of gallium and germanium obtained through China's new export licensing program is "a fraction of what we have purchased in the past."

Export controls complicate already challenging markets, and ongoing restrictions could disrupt the production of a wide range of goods from fiber optics to night vision goggles. As a result, long-term supply contracts are now almost impossible to obtain due to the uncertainties involved, with shipment approvals taking 30 to 80 days.

In response to these challenges, efforts are underway to increase local production and find alternative sources for these critical minerals. For example, Greece's Mytilineos is considering a gallium mining project to meet EU demand within 18 months. Nyrstar, a Belgium-based zinc producer, is exploring potential projects to recover gallium and germanium in Europe.

In addition, in certain applications, gallium can be replaced by silicon or indium, while zinc selenide can replace germanium. Additionally, recycling initiatives are being considered to recover these metals from scrap, although the scale of recycling is currently limited. However, these alternative routes come at a significant cost, with the supply chain costing around $20 billion and the effort spanning many years.