A surge in Chinese gallium prices, transport problems and a 25pc tariff on imports of Chinese gallium metal has left US consumers heavily reliant on recycling.
China export prices for 99.99pc gallium metal, which is mainly used in semiconductors and in rare earth neodymium iron boron (NdFeB) magnets for electric vehicles, hit a nine-year high of $385-395/kg fob China on 23 November, up from $220-230/kg a year earlier following Covid-related supply disruption and resurgent Asia-Pacific demand (see chart). The rise was partly driven by higher NdFeB magnet production in China, which now consumes an estimated 100 t/yr of gallium for magnets, which is around 20pc of total global gallium demand of 550 t/yr across all applications. Metal prices have since risen further, and were last assessed at $390-400/kg cif Europe on 30 December.
Looking forward to the first quarter of 2022 there are some factors that could support prices — the lunar new year holidays on 31 January-4 February 2022, after which export prices often rise, and the Beijing Winter Olympics on 4-20 February, which could suspend some heavy industry, potentially affecting gallium, which is produced as a by-product of the aluminium industry. In terms of downside factors, the biggest is rising inflationary pressure. Further rises in inflation could prompt Beijing to intervene to lower factory input costs by reducing raw material prices, which could drag down prices across non-ferrous metals. And, of course, another important factor is the impact of the Covid-19 Omicron variant.
The US and Europe have no primary production of gallium metal, although there are significant recycling streams. US demand is firm, underpinned by several critical and growing applications in 5G telecom networks and power electronics. Unlike their European counterparts, US consumers have also been impacted by the US-China trade and technology conflict that started three years ago. The US imposed 10pc import tariffs on many Chinese non-ferrous products, including gallium metal, on 24 September 2018. The tariff was increased to 25pc on 10 May 2019. The successful conclusion of a phase one trade deal between the US and China on 13 December 2019 did not result in any tariff easing, although a further increase to 30pc scheduled for October 2019 was delayed indefinitely.
But the dispute remains far from being resolved. "The reality is, this agreement [phase one] did not meaningfully address the fundamental concerns that we have with China's trade practices and their harmful impacts on the US economy," US Trade Representative Katherine Tai said recently.
US consumers and suppliers stockpiled heavily ahead of the introduction of tariffs. Chinese gallium imports rose by almost 300pc from 4,863kg in 2017 to 19,338kg in 2018 (see chart). And total US imports rose to 31,534kg from 20,230kg. But three years later, Chinese gallium imports have dwindled to 146kg out of the 3,294kg the US imported in January-October 2021, the lowest for the period since 2001. Recycling within the US has played a crucial role in filling the gap, with significant quantities of gallium recovered from processing waste including from the manufacture of gallium arsenide wafers, the largest semiconductor application.
The container shipping crisis also hampered efforts to bring in new metal supply this year. Gallium is usually transported by air. It is classified as hazardous because it can corrode aluminium and this restricts the number of air carriers willing to transport it. With any additional capacity taken up by cargo previously sent by sea, this has left few options. And just as manufacturing activity began to increase in the US after the easing of Covid-19 restrictions, the cost of replacement metal soared. Fob China prices for 99.99pc gallium hit a nine-year high of $375-385/kg fob on 16 March 2021 on rising Chinese domestic prices, up from $140-150/kg fob a year earlier at the height of the first wave of the pandemic.
By Caroline Messecar
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