Gallium prices spiked in late 2020, closing the year at US$264/kg Ga (99.99%, ex-works), according to Asian Metal. That is nearly double the mid-year price. As of 15 January 2021, the price had risen to US$282/kg. A temporary supply/demand imbalance has caused the uptick and market sentiment is that prices will return to normal before long. However, Roskill’s view is that a new ‘normal’ will be established.
Roskill View
Supply of primary gallium is not constrained by production capacity and, as it is essentially a derivative of the huge alumina industry in China, availability of raw materials feedstock is not normally an issue. Like all minor metals, however, it has its vulnerabilities.
China is the world’s leading producer of aluminium and its industry is supplied with bauxite mined domestically and imported. The bauxite is then is refined to alumina with the resulting mother liquor used to extract gallium by companies that are very often integrated with the aluminium producers. Only a handful of alumina refineries worldwide have gallium recovery circuits and they are almost all in China.
In mid-2019, the Chinese government began a series of environmental inspections on the country’s bauxite-mining operations. Those resulted in a shortage of bauxite from Shanxi province, which is where about half of Chinese primary gallium is produced. The alumina refineries were forced to switch to imported bauxite feedstocks.
The key issue with this change is that Chinese bauxite typically has a high gallium content and imported material usually does not. Gallium extraction became more costly and the cost pressures were increased as the shut downs also came at the time of year when high temperatures often cause a drop in output, because the ion-exchange resins used to recover gallium are less efficient (they were also reportedly high-cost in 2019). As a consequence, there were numerous shut downs of Chinese gallium plants, some prolonged, and total production in the country, and thus in the world, fell by over 20% in 2020.
The start of the COVID-19 pandemic in 2020 precipitated a fall in demand for primary gallium, as was the case with many commodities. The result was a sharp downturn in international buying activity, as consumers resorted to drawing down inventory. As a consequence, many Chinese gallium producers delayed restarting their operations. The inevitable crunch came during the second half of 2020, as inventories were depleted and demand picked up before supply did. Gallium prices skyrocketed, although in reality there was little material available for purchase. By year-end, monthly producer stocks in China were only 15t, down 75% y-o-y. The industry press reported that the situation was expected to return to normal quite soon. Supply certainly recovered and, by year-end, was back to the level seen in the first half of 2019. Prices have continued to climb, however.
As of mid-January 2021, it seems very likely that the industry is in a period of restocking due to the combination of high prices, low producer inventory and operating rates in many parts of China that are now back to 80%+ of capacity. Once stock levels are back to more typical levels, buying activity should slow, with prices easing. Demand for gallium is going to rise sharply because of the growth in 5G networks. For some years, the metal has been under sold at prices that do not reflect its true value and it is Roskill’s belief is that prices will ease in Q1 2021, but that the floor price of 4N gallium will be raised going forward.