Shulou(Shulou.com)11/24 Report--

This article comes from the official account of Wechat: ID:fanpu2019, by he Jun and Wang Benzhong

China has imposed export controls on gallium and germanium-related items since August 1. At present, many articles have introduced the basic situation of these two kinds of scattered metals. China is a big producer of gallium and germanium, and they are the key materials in many industries such as semiconductors, so this measure is considered to have a great impact on the global industrial chain. Is that really the case? From the point of view of gallium-related practitioners, this paper introduces the industrial application of gallium and analyzes the supply of gallium under the regulatory storm.

Written by he Jun and Wang Benzhong (Chengdu Xinzhong Technology Co., Ltd.)

In July 2023, the Chinese government announced that it would impose export controls on gallium and germanium from August 1, which can be said to have stirred up waves and aroused widespread concern and discussion.

These two elements have rarely appeared in the public eye in the past. In fact, the consumption of gallium translates into the existence of pure metal at a level of only a few hundred tons per year (we think this estimate may be slightly lower, or at least does not include recycling). The response to the news is higher than in the past-imposing sanctions on individual entities. Public opinion believes that its potential impact is wider, showing the escalation of the Chinese government's anti-containment measures and determination. The new controls are not the imposition of tariffs without discrimination, but the implementation of export licensing controls, the actual consequences of which are highly dependent on implementation (normal exports can still be granted after approval). However, no matter what the specific operation is, due to the current global market division of labor in related fields, it is very difficult to accurately crack down on specific countries, specific areas and specific entities, and regulatory measures affect the whole related industrial chain. At present, China accounts for more than 90% of the world's crude gallium production and has a strong influence on the industrial chain. The price of China's exports of crude gallium soared 27% in just a few days after the news broke. As practitioners in related fields, we are also very concerned about the impact of the gallium supply chain crisis on the industry, including the recent shocks, the reactions of all parties, and the long-term situation that may be caused by follow-up developments.

Gallium does not exist as free elements in nature, but as trace compounds in bauxite and sphalerite. Due to its unique thermal, optical and electrical properties, wiki gallium has many applications in industry, involving low-melting alloys, catalysts, optical glass, dental fillers, piezoelectric materials, sensors, IC, microwave radio frequencies, permanent magnets, photovoltaic, LED, power devices, etc., and it is even difficult to have a truly complete list. Due to the small market volume, gallium-related industries form a typical global marketization model of horizontal integration, which is interdependent and nested. Assessing applications and alternative possibilities requires specialized and in-depth expertise, including technical and quantitative global market information, which would have been very difficult. However, if we start from the characteristics of its main application areas and look at it from a market point of view, we can still get some relatively clear results.

The most prominent application of gallium series materials is in the field of chips. When ordinary people mention chips, they think they are all made of silicon. Indeed, silicon-based chips account for more than 90% of the whole industry, and the rapid and predictable development of its related technical performance has profoundly and extensively affected human society and become the basis of the information industry in the past few decades. However, the silicon material also has some inherent shortcomings, first of all, as the so-called "indirect band gap" crystal material, the luminous efficiency is low; in addition, its band gap is narrow and fixed, so it is difficult to adjust. Therefore, in the field of lighting optoelectronics, the so-called direct broadband gap compound semiconductors are mainly gallium nitride (blue-white light), gallium arsenide (red light) and indium phosphide (low loss band of optical fiber).

Gallium arsenide wafer source: matltech.com the crystal material characteristics of gallium series materials also make it the basis of radio frequency devices. Radio frequency devices are the basic devices in wireless communications, radar and other industries. Taking gallium arsenide radio frequency device as an example, the basic manufacturing process is as follows: first, a high quality bulk single crystal material is made, and then cut into a wafer with a thickness of about 0.5 mm (called wafer substrate). Then a thin layer of gallium arsenide material (called epitaxial) is deposited on the top surface of the substrate, and then the epitaxial layer is processed by various processing procedures to make the device arranged on the upper surface of the wafer. Finally, most of the thickness of the substrate should be removed from the back to meet the requirements of heat dissipation and control of parasitic inductors. The only substitute for gallium arsenide in some applications (radar, base station, etc.) is the gallium nitride material with stronger performance in some aspects, which can not be bypassed by gallium nitride, but the gallium nitride device does not use homogenous substrate at present, so the dosage is much less. It is worth noting that gallium nitride devices are not suitable for all gallium arsenide RF applications, such as RF power amplifier chips in mobile phones. In addition, radio frequency and optoelectronic devices using gallium arsenide single crystal substrates have different quality requirements. At present, China also imports a large number of high-quality gallium arsenide single crystal substrates.

In addition to the more "traditional" applications mentioned earlier, gallium is also associated with a very important emerging field. This is a power electronics (also known as power) device. Compared with RF devices, power electronic devices have lower working frequency, larger area, higher power level, higher requirements for reliability and cost, and larger market volume. Gallium nitride power electronic devices, such as mobile phone chargers, have entered the consumer electronics market, but they are still made on substrates of other materials. Gallium oxide, which uses homogeneous substrates, is a promising star for high-end power electronic devices and has been regulated by the US government.

The wafer substrate of gallium nitride, which is a key foundation for another area of capital concern, white (blue) lasers, has also come a long way and is getting closer and closer to large-scale commercial use.

General situation of gallium metal supply in China and the United States the global extraction of gallium materials is mainly a by-product of aluminum production from bauxite. After the large-scale entry of Chinese enterprises, gallium has generally been in a situation of oversupply, and it is estimated that China produces more than 90% of the crude gallium (99.99% purity, commonly known as four nines) in the world. The amount of crude gallium per kilogram fell from about 4000 yuan before to less than 1000 yuan in 2012. After that, some entities outside China stopped the production of crude gallium one after another. In recent years, due to China's environmental protection requirements for related industries and supply chain fluctuations caused by the epidemic, crude gallium prices have risen in a short period of time, but have never reached the level of 4000 yuan before 2012; even if demand has increased significantly in recent years, coupled with the increase in crude gallium prices brought about by this export control, it is only a little over 2000 yuan per kilogram. Looking back at history, the price is not high.

Due to the horizontal integration mode of the relevant industrial chain, the scenes seen by each market are very different. In the case of China, the output of gallium materials is mainly driven by the demand of its own internal market, which is mainly consumed by the rapid growth of (NdFeB) permanent magnet materials, copper indium gallium selenium thin film photovoltaic materials, lighting photovoltaic and other markets. China also needs to import some refined gallium with higher purity, and the price change of 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 storm will further promote China's refined gallium purification industry.

Gallium nitride semiconductor devices (Picture Source: dignited.com) the United States, on the other hand, is 100% dependent on imports of gallium. The gallium-consuming industry, which is dominant in China, is underdeveloped in the United States because of its cost. Gallium series materials imported from the United States are mainly gallium arsenide single crystal substrate materials, which account for a significant proportion of global gallium consumption; in addition, there are also some crude gallium and refined gallium. As the United States currently imposes high tariffs on Chinese metal gallium, the latter's share of imports in the United States has dropped to less than half. Taken together, America's direct dependence on gallium from China has fallen to a relatively low level. And most of the materials used in gallium arsenide RF devices can be consumed and recycled during the manufacturing phase (which is also related to the environmental requirements of arsenic). In fact, one of the purposes of the United States to increase taxes on Chinese gallium imports is to protect the entities that still exist in the United States to recycle gallium. Therefore, those who are directly affected by China's export controls in the short term are mainly suppliers of high-end gallium arsenide crystal materials from Europe, Japan and other countries. The production capacity of these suppliers is in the form of a global division of labor, and accurate statistics of their supply chains and the logistics of gallium products is not a simple task. This is reminiscent of the recent measures taken by some countries to block semiconductors in China with the United States.

High-quality gallium arsenide single crystal substrates imported in large quantities from both China and the United States, the process added value is much higher than the material value, and is not sensitive to the current fluctuation of crude gallium prices, so it will not cause supply fluctuations. In fact, China has been facing certain supply risks in this area. The quality of their related products is close to maturity, so this storm may promote the application of domestic gallium arsenide single crystal substrates in the RF field.

In addition, both China and the United States also import high-purity materials used for epitaxial growth containing gallium, including trimethyl gallium, high-purity metal gallium and so on. Hybrid materials are smaller than their consumption, account for a small proportion in the cost structure of the final product, and will not be affected too much. Similarly, Chinese users in this area also face certain supply risks, and the technology of domestic suppliers is also close to maturity, so gallium export controls may promote its commercial application. Just because of the small size of the market, the willingness of capital to support is in doubt.

The long-term pattern of gallium supply. 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 the most important RF devices of gallium series materials, there is no visible substitute. It has been assumed that silicon CMOS and silicon germanium (here another material included in export control) devices can significantly replace the share of gallium arsenide devices in the mobile terminal market, but the result is the opposite-the demand for gallium arsenide devices increases with the development of the communication market. In addition to radio frequency devices, there is no suitable substitute for gallium in such important industries as lighting optoelectronics. On the other hand, in order to reduce the dependence on gallium sources, it is economically unrealistic to further recycle gallium in the final products (mobile phone chips, permanent magnet materials, PV films, etc.). Taking the NdFeB permanent magnet material as an example, the recovery cost of the rare earth element neodymium, which is the main component of the material, is not economical enough, the market lacks the willingness to recover, and gallium is only added in a small amount, so the separate recovery of gallium has no economic significance. The gallium in a typical mobile phone RF power amplifier chip is only a few milligrams, worth less than a penny. Therefore, it is an inevitable choice for some countries to rebuild the industrial chain basis of crude gallium supply outside China. According to the current price, we estimate that the supply cost of crude gallium for foreign reconstruction will not be less than 5500 yuan per kilogram, but it will not be too high. However, the application scale of many gallium materials listed above is very small and insensitive to a wide range of cost changes, so they will not be greatly affected, so there is no need to discuss too much.

We are more concerned about some relatively large and cost-sensitive industries, such as permanent magnet materials, PV, lighting optoelectronics, etc., as well as the above-mentioned emerging areas, which are more dependent on the stability of gallium supply. After the technological breakthrough of China's high-end RF material industry, the industry will also form a situation similar to the price reduction caused by the "internal volume" of many industries today. Unless China also adopts measures such as stricter environmental requirements, which lead to a significant increase in the cost of crude gallium extraction, there will be no significant cost difference. For countries outside China, in order to maintain the market volume needed by the industry, it is unrealistic to rely solely on government subsidies, and there may be trade barrier protection, which will further increase the cost of downstream industries. In these industries where China already has technological capabilities, they are already cost-sensitive, and such protectionist actions may lead to further trade protection.

On the whole, the process of the development of gallium series materials in the past few decades is the process of gradually moving from communication and military industry to industrial production and daily life in people's expectations and unremitting efforts. The demand is increasing, and the supply chain is becoming more and more market-oriented. China is the global manufacturing center, which has a significant impact on many industrial chains. The horizontal integration and division of labor of the industrial chain on a global scale is not only the result of globalization, but also a force to maintain globalization. The relevant institutions in China have chosen germanium and gallium, two rare mineral resources, to exercise control, and must have made corresponding investigations and trade-offs. But on the whole, the industrial chain related to these two element materials is not essentially different from other industrial chains. China's counterattack measures are a last resort and a warning. This will be reflected in the subsequent specific operation and influence. The application and development of gallium series 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.

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