TheChek News Flow

- 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

Top policymakers seek to reassure public that economy can withstand worst of trade war

China’s top economic officials said the country could do without American farm and energy imports as they vowed to achieve a 5 per cent GDP growth target for the year despite the trade war with the US. 

Zhao Chenxin, vice chair of the National Development and Reform Commission, China’s state planner, said domestic farm and energy production, along with imports from non-US sources, would be more than enough to satisfy demand.   

“Even if we do not purchase feed grains and oilseeds from the United States, it will not have much impact on our country’s grain supply,” Zhao said. 

His comments came during a Monday press conference where top Chinese policymakers sought to reassure the public about the state of the economy and pledged to step up support to stave off the effects of Donald Trump’s trade war. 

Zhao said that US agricultural imports were “primarily for feed grains, which were highly substitutable” and noted there would be limited impact on China’s energy supplies if companies stopped importing American oil, natural gas and coal.

The loss of the Chinese market would be a substantial hit for American farmers, who shipped roughly $33bn of agricultural goods to the country in 2023. The US also sent about $15bn of oil, gas and coal to China.

Brazil and Argentina are among those expected to ship more to China. The US’s share of China’s food imports collapsed to 13.5 per cent in 2023 from 20.7 per cent in 2016, while Brazil’s grew from 17.2 per cent to 25.2 per cent in the same period.

Despite rising desire in the Trump administration for talks with Beijing, China has shown little appetite for negotiations and repeatedly blasted Washington’s claims of ongoing discussions as false.

China last week indicated that the US should cancel its tariffs as a starting point for trade talks. 

With US-China bilateral tariffs at more than 100 per cent, trade between the two economic superpowers has begun to fall, causing Chinese factories to begin furloughing workers.

Still Zhao maintained that Beijing was “fully confident” of hitting the country’s 5 per cent growth target for the year, even as he admitted “external shocks were increasing”.

China’s commerce vice-minister Sheng Qiuping also said that exports continued to grow in April, even after the trade war began.

Policymakers said they would accelerate the introduction of measures to stabilise employment and the economy. Officials vowed to step up financing and credit support for exporters and repeated pledges to help Chinese manufacturers sell more goods at home and find new markets abroad.

Zou Lan, deputy governor of the People’s Bank of China, said the central bank would free up more cash for banks and cut interest rates at an appropriate time, while also vowing to keep the renminbi’s exchange rate stable. 

A top official at China’s human resources ministry said new labour policies included calls for state-owned enterprises to hire more recent university graduates and extra money to underwrite hiring and employment subsidies.

The country’s urban unemployment rate stood at 5.2 per cent in March, while the youth jobless rate was substantially higher at 16.5 per cent.

“Chinese policymakers are on heightened standby mode,” said Louise Loo at Oxford Economics. “While there were broad assurances to boost household spending and support tariff-hit businesses, job stabilisation appeared to take precedence.”

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Could EU methane emission rules hamper a gas deal with Trump?

Pipe dream

Major EU importers of gas have said that the bloc’s new rules to cut methane emissions are complicating contract negotiations, just as the bloc tries to wrap increased energy purchases into a trade deal to appease US President Donald Trump, writes Alice Hancock.

Context: The EU adopted stringent rules to cut methane emissions in 2024. Methane, which often leaks from gas infrastructure, is 80 times more polluting than carbon dioxide during the 20 years after it is released, and a significant contributor to climate change. Fixing methane leaks is seen as one of the most achievable climate policies.

Under the EU methane rules, fuel importers must monitor and report their methane emissions or face fines. Other countries’ rules can be deemed “equivalent”, but few have a framework as strict as the EU’s.

In a letter to the European Commission sent today, gas companies including BP, Equinor and Uniper have said that “unresolved uncertainties” in the law concerning importers’ reporting requirements are “already disrupting contract negotiations and risking the EU’s energy security”.

The companies, which will face fines of 20 per cent of annual turnover for non-compliance, have said that the commission must take “urgent action” to clarify the rules. Otherwise they will “further limit Europe’s ability to attract diverse and reliable gas supply”. Companies are due to make their first reports in May.

The statement comes as the EU is in the process of finalising a plan for how to wean itself off Russian fossil fuels. A senior EU official said that the document would contain various legal options for how companies could break their Russian contracts.

Brussels favours buying more US LNG as a way to fill any gap left by cutting out the last Russian imports, and Brussels has said it is happy to comply with Trump’s demands that the EU buy more US fossil fuels as a way to bridge its goods trade deficit with the US.

Trump shook hands with commission president Ursula von der Leyen at Pope Francis’ funeral on Saturday, and the two used a brief exchange to agree to a meeting, her spokesperson said without providing details.

But Trump has also moved to scrap US rules around reporting methane emissions, complicating any efforts to deem US methane rules equivalent in order to smooth imports.

Berlin faces EU test over German electricity market break-up

Sweden, Belgium and Czech Republic argue country’s market restructuring could drive prices down

Germany’s new government faces an early test of its sway in Brussels as it defies pressure from neighbouring countries to break up the German electricity market.

Sweden, Belgium and the Czech Republic are among countries to have argued that splitting the large German market into several zones could lower prices for their consumers, as electricity flows to the region of highest priced demand.

Europe’s grid operators on Monday are set to publish a report that could recommend the split — a measure that was successfully implemented in Sweden. Stockholm has said that it was only prepared to approve a power cable connecting Germany to southern Sweden if Berlin also reorganises its electricity market.

But the German industry, already struggling with high energy prices and low European demand, has strongly opposed changes to the country’s energy market, amid fears that it would drive up prices for the heavily industrialised south.

The EU grid operators’ umbrella organisation (Entsoe) will publish its recommendations on Monday. The body is expected to push for a division of the German market into either two or three zones, according to people with knowledge of the process.

If Berlin refuses to restructure its market and other member states insist on the split, the European Commission could take charge of the process — potentially pitting the administration of incoming Chancellor Friedrich Merz against his former party colleague, Ursula von der Leyen, who is now the commission’s president.

Studies done by the Commission show it prefers a break-up, one EU official said.

Entsoe delayed its report by several months, as Berlin balked at the prospect of having to restructure its power market. In 2022, the EU energy regulator Acer put forward several scenarios on how to split the German market, saying such a move would reduce bottlenecks and help connect renewable power sources to the grid.

“If you’re talking about energy security in terms of how to make Europe’s power grids more efficient and stable you really need to split Germany into a north and south power zone,” said Henning Gloystein, director of climate, energy and resources at Eurasia Group.

Entsoe declined to comment on the contents of the report.

EU diplomats from Germany’s other neighbouring countries have also said they would favour a break-up.

“We don’t want to piss off Germany, but de facto yes [we favour a split] — not as a matter of principle but because it would make the EU market more efficient and better functioning,” said one EU diplomat.

Early drafts of the new German coalition agreement adopted earlier this month signalled openness to reconfiguring the electricity market. But the final document said Berlin would stick to the current structure, in place since 2007, in a bid to lower energy prices and help industry.

Some of Merz’s Christian Democrats (CDU) are more open to the idea, but admit it would hard to pull off in the current environment. Christian Ehler, a CDU lawmaker from northern Germany, said electricity bills were paradoxically higher in regions that had a lot of cheap renewable energy.

A split would be “economically and physically the best option to reduce redispatch costs”, Ehler said, but the resulting disruption “might not be the best option at the moment”.

Gloystein said the influence of Germany’s regional governments, with the richer ones in the south balancing the budgets or poorer ones in the north, was “so insurmountable that the federal government would prefer to be told off by the Swedes than deal with the Bundesländer”.

Matthias Belitz, head of energy at the German chemical lobby VCI, warned that splitting Germany’s pricing zones would create “massive uncertainty” and further hit the country’s already struggling chemical sector.

“Splitting the electricity bidding zone would be tantamount to a complete reorganisation of the electricity market, which would take many years,” he said. “A lack of planning security and reliability is the complete opposite of what companies need in the current difficult situation.”

Renewables investors, particularly in wind farms, back the position of heavy industry, arguing that dividing Germany into two or three zones undermines their investment case.

“If you want to build a wind farm today in Germany you make a calculation about future revenues,” said Giles Dickson, chief executive of WindEurope. “Today you base those calculations on Germany being one single wholesale electricity market with one single price.”

Bernd Weber, managing director of German think-tank EPICO KlimaInnovation, said it was possible to balance the conflicting interests through compensation. “But unfortunately we are not having this discussion,” he said, as his government was opposing the split.