High gallium metal prices to weigh on growth of consumption
----Interview with Guangyu Shao
Vice General Manager
Zhejiang Compound Semiconductor Co.
Registered in Lanxi town, Zhejiang Compound Semiconductor Co. was established in November 2018 with a registered capital of RMB56,664,200 (USD8,120,058). The company focuses on the research and development, production and sales of semiconductor materials with the main product of gallium arsenide wafer, which widely applies to LED light-emitting devices, radio frequency devices for wireless communication and laser preparation. The first phase of the company covers an area of 34.19 acres, with a total construction area of 32,000 square meters. On basis on the most advanced gallium arsenide industrialization technology in China, the company has a production capacity of 3 million pieces of gallium arsenide wafer.
Asian Metal: Mr. Shao, welcome to the interview by Asian Metal. Please first introduce your company and your professional experience.
Mr. Shao: Zhejiang Compound Semiconductor Co. is a professional company engaged in production, research and development, and sales of semiconductor materials and photoelectric materials. Mr. Junpeng Pu, the legal representative, used to be a researcher of the Institute of Semiconductors, Chinese Academy of Sciences, and he is also a pioneer in the industrialization of gallium arsenide substrate materials in China. Our company is committed to domestic research and development of compound semiconductor substrate materials to break through the blockade from the foreign countries on techniques of compound semiconductor substrate materials. At present, we focus on producing gallium arsenide substrate, which is mainly used in LED, microwave, radio frequency and other fields. Our equipments are all homemade and we have a production capacity of 3 million pieces of compound substrate material. We would work together with upstream and downstream companies to complete the substitution of domestic materials. Since 2005, I have been engaged in the growth of sapphire crystal and post-processing of gallium arsenide. My position has gradually changed from the technical team to the management team.
Asian Metal: As the main raw material of gallium arsenide, what is the proportion and role of gallium metal in your company's products? How about your company's consumption of gallium metal in 2022 and how does your company respond to the large price fluctuations since the beginning of 2022 till now?
Mr. Shao: The main raw material of our polished gallium arsenide wafer is arsenic metal 99.9999%min and gallium metal 99.9999%min, accounting for 50% each. We seldom use arsenic metal 99.9999%min and gallium metal 99.9999%min. Since 2020, our consumption of gallium metal 99.9999%min kept showing an increasing trend with a YoY increase of 50%. For us, the price of gallium metal is the main factor affecting the production cost of gallium arsenide. Our purchase volume of gallium metal 99.99999%min showed an obvious increase in the first half of 2022, from about 600kg a month at the beginning of the year to about 1,500kg a month in the middle of the year. The prices of gallium metal fluctuated greatly in 2022. We signed a long-term contract to ensure the basic supply and then built some stocks from the spot market to make up the gap. Even with the above measures, gallium metal price fluctuations brought great pressure to our purchase team. Especially in the second half of 2022, due to the sharp fluctuations of gallium prices, we have to cut our purchase quantity by around 30% MoM to relieve the production cost pressure. If the gallium metal prices hover at a reasonable level, we would consider increasing the purchase quantity in addition to the long-term orders.
Asian Metal: How do you view the price fluctuation in 2022?
Mr. Shao: The average price of gallium metal 99.99%min in January and November in 2022 stand at a similar level. But the price hit its peak at about RMB3,600/kg (USD516/kg) at the end of May, up about 56% from the lowest price since early this year. Then the prices began to dive by almost 60% to about RMB1,350/kg (USD201/kg) EXW D/P till the end of 2022. We believe that the main reason for such great price fluctuation is that gallium metal producers deliberately raised the prices encouraged by the demand increase at the beginning of the year. In the second half of 2022, the semiconductor market demand did not meet the growth expectation, but with the rising prices of gallium metal and other raw materials resulted in the continuous demand decrease of the semiconductor market. Therefore, the prices of gallium metal fell to about RMB1,350/kg (USD201/kg) at the end of 2022.
Asian Metal: How do you forecast the price trend of gallium metal in the next three months?
Mr. Shao: We expect the prices of gallium metal would show a downtrend in the coming three months as the demand in semiconductor market stays soft. We think that the reasonable price level of gallium metal should be in the position where both the upstream and downstream companies have profits rather than that the upstream enjoys huge profits while the downstream suffers losses, so that the gallium metal market could maintain long-term sustainable development.
Asian Metal: What about your expectation on the semiconductor industry in 2023?
Mr. Shao: In 2023, we hold optimistic attitude towards the Chinese semiconductor market. With the continuous advancement of localization and technological progress, the terminal consumption proportion of homemade products would stay still relatively high in China. We expect that the semiconductor demand would recover in the third quarter of 2023.
Asian Metal: What is your company's expectation of gallium metal consumption in the coming year?
Mr. Shao: We believe that the consumption of gallium metal would not increase too much in the next year. As the demand of semiconductor consumption decreased by about 50% in the second half of 2022, it will certainly take time for the upstream to wait for the demand recovery. However, if the prices of gallium metal keep hovering at over RMB2,000/kg (USD287/kg), the downstream would correspondingly reduce the consumption to relieve the cost pressure. At present, we expect to purchase almost 20t of gallium metal totally in 2023.
Asian Metal: What is the vision and plan of your company in 2023?
Mr. Shao: We would stick to our target and continue expanding the market. Meanwhile, we plan to enrich the types of our products, to increase market promotion, and to enlarge the proportion of product localization.
Asian Metal: Thank you for your wonderful sharing. We wish Zhejiang Compound Semiconductor Co. a better future!
Mr. Shao: Thank you for the interview and best wishes to Asian Metal.
