China’s chip-metals producers surge on export restrictions

The shares of Chinese metals producers surged after Beijing imposed export controls on gallium and germanium, which are used in chipmaking, communications and defense.

Yunnan Lincang Xinyuan Germanium Industrial Co. jumped by the 10% daily limit in Shenzhen and Yunnan Chihong Zinc & Germanium Co. also hit that mark in Shanghai before paring gains. 

The two metals are often produced as a byproduct from refineries focused on zinc and aluminum. Zhuzhou Smelter Group Co. climbed to the 10% limit before losing much of that advance and Yunnan Luoping Zinc & Electricity Co. rose 5%.

The stocks jumped on expectations that the supply restrictions would fuel massive price rises for the metals, which would outweigh the drop in export volumes, said Li Weiqing, fund manager at JH Investment Management Co.

Beijing’s move represents an escalation of the technology trade war with the US and Europe. Exporters of the two metals will need to apply for licenses from the commerce ministry if they want to start or continue to ship them out of the country, and will be required to report details of the overseas buyers and their applications.

The controls aren’t likely to have a major impact on leading germanium producers, but could be more onerous for smaller operations, said Hu Yan, an analyst at Shanghai Metals Market. There’s a lack of details on how the curbs will be implemented and Chinese exporters are seeking clarification, she said.  

Yunnan Chihong Zinc & Germanium declined to comment. Calls to Yunnan Lincang Xinyuan Germanium and Aluminum Corp. of China Co., which produces gallium, weren’t answered.

China controls around 80% of the world’s gallium and germanium output, while the US relies on imports for over 50% of its germanium needs, Jefferies LLC analysts including Edison Lee said in a note. 

The two metals aren’t particularly rare, but Chinese dominates processing. Japan, South Korea, Russia and Ukraine produce gallium, while the US, Canada, Belgium and Russia make germanium, according to the CRU Group, a metals industry intelligence provider. 

There are not many immediate alternatives for germanium supply, said SMM’s Hu. The US is rich in reserves, but it takes time to build up processing plants, she said.