EU asks metals producers to explore making chip inputs after China export curbs

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The EU is urgently calling on aluminium and zinc companies to investigate producing key semiconductor metals after China announced plans to curb exports of gallium and germanium.

Beijing’s decision to enforce export restrictions on the two critical minerals from August has prompted a scramble across Brussels, Washington and Tokyo to find sources of materials outside of Asia’s largest economy.

The EU has approached Mytilineos Energy & Metals, a Greek aluminium producer, and asked it to explore producing gallium as a byproduct at its refinery that turns bauxite into alumina, a starting material for aluminium, in Agios Nikolaos in Crete.

“The EU has reached out to us with regards to evaluating how alumina refineries can contribute to a way out of this crisis,” said Nick Keramidas, executive director of EU affairs at the company.

The EU sources 71 per cent of its gallium and 45 per cent of germanium from China, according to the EU, but there are only a handful of companies outside of China capable of producing the high-purity metals used in chipmaking, solar photovoltaic cells and optic fibres.

However, the dire state of Europe’s metals sector makes it a difficult proposition for companies to invest tens of millions of euros to produce gallium without state support to help them deal with the region’s high energy costs and rising inflation. These have already forced many smelters to come offline.

“We realise China can twist our arm. Europe said ‘oh let’s ramp up production, alumina refineries can look at that’ but last time I looked, half of them were down,” said Keramidas.

“When you can’t competitively produce your main commodity because the conditions are so absurdly problematic, it might be idiotic to invest in a side-product that is gallium.”

It is not the first time that Brussels has panicked about supplies of minerals under pressure from China. The EU made similar efforts to boost domestic production of magnesium after China cut production in 2021 because of energy shortages.

Eurometaux, the bloc’s trade body for non-ferrous metals, confirmed that several companies were looking into improving the region’s resilience for germanium and gallium but warned that “this is a wider industrial policy discussion”.

“Last year it was magnesium, and we don’t know what metals will be next in the geopolitical spotlight,” it said.

Europe is in a tougher situation when it comes to developing its own germanium output. Only zinc smelters using a specific process can recover it, but very few outside of China use that method and none in Europe do.

Trafigura-owned Nyrstar is among those assessing building a $150mn germanium and gallium recovery and processing facility at its zinc smelter in Tennessee, which could cover 80 per cent of US demand but would take at least two years to construct. Umicore, a Belgian advanced materials group that recycles germanium, said it is developing technologies based on “thin film” germanium to reduce use of the material.

Gallium prices have surged 28 per cent since China’s announcement, according to Fastmarkets, a price reporting agency.

But several executives highlighted the need for EU officials to develop policies for dealing with the opposite problem: how to remain competitive when China floods the market.

The two metals are among those listed as strategic in a regulation currently under discussion, which is designed to boost the bloc’s supplies of materials critical to the green transition.

Beijing’s export restrictions came after the Netherlands followed Japan and the US in limiting the sale of high-end chipmaking equipment abroad.

The European Commission said it was working on a “detailed analysis” of the Chinese export controls and whether they were compatible with World Trade Organization rules.

“The Commission is concerned that these export restrictions are unrelated to the need to protect essential security interests. We call on China to take an approach whereby export controls are based on relevant security considerations,” a spokesperson said.

Greek environment minister Theodoros Skylakakis said he hoped Greece could become a hub for the production of critical minerals in Europe, partly thanks to Mytilineos’s potential to produce gallium from bauxite.

If the EU’s “open, competitive model” was undermined by “specific geopolitical situations”, the bloc should “take measures to make sure we are protected”, he added.