Boston Consulting Group (BCG) Associate Director: China’s export controls on rare earths could cause production delays and higher costs in the semiconductor industry as soon as next year; If tensions worsen, China could tighten its license issuance to turn off the tap for certain minerals overnight
- If export restrictions remain in force or tighten through 2025-2026, companies not diversified away from Chinese sources could face production slowdowns, higher production costs, slowdowns in wafer throughput and possibly product launch delays for devices that rely on affected components
- If we arrive at a scenario where no gallium or dysprosium at all is flowing to U.S./EU buyers, this would severely constrain any technology requiring III-V semiconductors or rare-earth magnets
- Overall, the likelihood of this scenario is somewhat limited as new non-Chinese mining/refining projects start coming online, recycling programs ramp up and diversification is on its way. But we are still in a difficult change period for the semi and electronics industry
- I assume that over the next few years, we can expect some traditionally China-dependent materials to have robust non-Chinese supply chains or substitutes like DRAM-grade tungsten from Canada, dysprosium-free magnet modules from Japan, or even novel semiconductor materials like Ga2O3 or boron nitride being developed to bypass gallium entirely
- Rare-earth magnets using neodymium-iron-boron alloys doped with dysprosium/terbium are part of lithography systems and wafer-handling robots, so curbs on these inputs could delay equipment deliveries and maintenance for chip fabs; The first immediate impact is that IDMs and foundries face cost inflation and potential bottlenecks in production if their Chinese sources for such specialized materials dry up
- Neodymium is arguably the single most critical rare earth for electronics; Neodymium-praseodymium alloys generate powerful permanent magnets used in semiconductor manufacturing equipment like lithography scanners and etch tools as well as in countless electronic devices