China has just imposed restrictions on exporting two metals that are crucial in the production of parts of semiconductors, and in the telecommunications and electric-vehicle industries. The decision is in retaliation for the Biden administration’s move last September to impose a sweeping set of export controls banning Chinese companies from buying advanced chips and chip-making equipment without a licence.

So, what are the metals involved here? The two metals are gallium and germanium. Gallium, as everybody knows (not!) is used to produce LEDs for smartphones and calculators. Gallium is kind of a fun metal because its melting point is extremely low, which means it melts in the palm of your hand. The low melting point helps in the process of converting electricity into light.

Germanium (and sorry, but this is just a minefield for us dyslexics not to confuse this metal with an indigenous South African flower) is a bit more complicated because it’s often used as an alloy in phosphors that create fluorescent lamps, in addition to its applications in electronic devices. It’s transparent to infrared radiation, Google tells me, so it’s used in detecting and measuring such radiation, which makes perfect sense.

Whatever the case, these are not high-utilisation metals. The price of neither has budged since the announcement, which tells us perhaps that users see this as a “shot across the bow” measure that won’t be implemented very strictly. Or maybe it’s just early days.

The other tricky aspect of the restrictions is that they apply not just to those who own the original resource, but also to those who refine it. Both gallium and germanium are produced as a byproduct during the refining process of other metals, like zinc and aluminium. And stocks of those exist in a lot of places around the world. But at the moment, a huge proportion of the refinement of lithium, for example, takes place in China.

The broader point is that new metals have become increasingly important, and the industries that might rely on these metals are transparently nervous about consistent supply and making sure prices don’t explode. On that second point, all you can say is, too late. But the effect is very difficult to predict.

Take electric cars, for example. Tesla CEO Elon Musk has openly worried about the supply and the price of lithium. And the company has already invested in a US lithium miner.

Actually, lithium is pretty plentiful around the world. But being plentiful is not the same as having a reliable supply for a product whose global demand in the future is still a bit of an unknown. But that hasn’t stopped other car makers from getting in on the act. Volkswagen and Stellantis  this week committed $100-million to create a publicly traded mining company that will produce nickel and copper from two Brazilian mines running on hydropower.

Part of the problem is that we just don’t know how batteries are going to develop. A typical battery pack for a fully electric car has something between 8 and 62 kilograms of lithium. Batteries range from LFP (lithium iron phosphate) with zero cobalt and nickel, to NCA (lithium nickel cobalt aluminium oxide) battery switches, which are mostly cobalt and nickel. 

One interesting mineral in this list is manganese, because by far the world’s largest supplier would be little old us. SA also has the world’s largest known reserves, though there are plenty around the globe. But it does illustrate how SA’s mineral and mining history could be very helpful. So obviously, the government, the Industrial Development Corporation and the Public Investment Corporation are pouring billions into research and production of these new age metals, right? Dream on, brothers and sisters; local sales of manganese ore are flat despite huge increases in production and export by the private sector.

One interesting aspect of the increasing prominence of new-age metals is how the prices are moving, and to say these are unpredictable would be an understatement. The cobalt, rhodium and (as it happens) gallium prices have all halved this year. So much for the “don’t invest in the railways, but invest in the spades” investment strategy.

Even lithium is down by 35% this year, although it’s still much more expensive than it has been over its lifetime. The same is true of nickel. And it must be said that the prices of many commodity groups do fluctuate hugely. Orange juice, for example, is up by 40% this year. 

Still, I suspect the commodities markets are not yet appreciating the changes that are to come. Like many markets, they are very good at adjusting for short-term changes to supply and demand but can be very bad at predicting longer-term changes.

When it comes to investing in mining, it’s quite easy — as we in SA know all too well — to get shafted. DM