Metals Commentary: 5G technology should boost demand for gallium, cobalt

During the World Radiocommunication Conference (WRC) in Egypt in November, thousands of delegates from more than 100 countries adopted a treaty that moves the world closer to fifth generation (5G) technology, which will require a massive deployment of mobile wireless infrastructure that will likely consume significant amounts of rare earth elements (REEs) and metals like cobalt.

The WRC-19 conference tackled issues related to radio spectrum, which carries everything from mobile data to military communications to satellite traffic. Key among the discussions was the spectrum that will enable 5G in mobile wireless technology. Highly anticipated 5G applications include self-driving cars, augmented reality (think Pok?(C)mon GO), and remote mining operations. The new treaty sets key rules for the use of 5G wireless networks' spectrum.

These 5G applications will require an entirely new approach to wireless infrastructure, which could mean turning to new compounds in semiconductors.

Current networks are primarily focused on providing coverage rather than traffic capacity. The 5G networks will use higher frequency spectrum, higher power, and many times the number of base stations (antenna sites) to primarily support enormous volumes of mobile wireless data with very low latencies or signal delays.

Mobile wireless data traffic is expected to increase up to 100 times current levels by 2030, according to the International Telecommunication Union, which hosted the WRC-19 conference. The ITU forecasts that the number of connected devices on the internet will increase to 50 billion from the current 22 billion as early as 2025.

Argus Media, which monitors metals and other resource markets, says 5G is driving a switch toward new metal compounds in semiconductors in place of older silicon-based technologies. A big winner, it reasons, could be gallium nitride (GaN), which operates faster at higher frequencies and power rates, and could resolve the challenges facing silicon power systems in 5G applications.

U.K.-based consultants Roskill note that 5G "is expected to be the next big catalyst for radio-frequency GaN," and in a recent study forecast the total GaN market is expected to grow 30% between 2017 and 2023, when 5G will still just be in its early days.

In 2018, the radio frequency GaN market was worth US$467 million, representing a 23% increase over 2017, according to the United States Geological Survey (USGS).

Another gallium compound likely to remain a strong performer in the coming years is gallium arsenide (GaAs), which is used in sectors like smartphones, military radar and other communications applications.

Between 2014 and 2017, the GaAs market increased from US$6.25 billion to US$8.8 billion. Roskill expects these sectors will remain the largest end-users of gallium (as opposed to GaN) until 2025, as demand for its current uses continues to grow.

Roskill says the gallium market is adequately supplied and expects it to remain so in the coming years.

In May 2018, the U.S. government included gallium in a list of 35 metals it says are critical to its national security.

China produced 95% of all primary gallium production in 2018 (390 tons of 410 tons in 2018), according to the USGS. Major producer Aluminum Corporation of China (Chalco) has 160 tons of gallium production capacity alone. However, China's current monopoly doesn't necessarily mean the country will dominate the market forever, experts say, as other producers include Japan, South Korea, Germany, Ukraine and Russia.

Should 5G demand, paired with ongoing strong growth in demand from LED lightbulbs and liquid crystal display (LCD) screens, consume existing production, producers outside China could ramp up production they have slowed or mothballed in recent years due to low prices.

Roskill expects prices to remain low in the near-term but says stronger demand could move them sooner than predicted.

Cobalt samples at First Cobalt's refinery. Credit: First Cobalt.

Already, rising demand has started to stabilize the market, which was oversupplied between 2011 and 2016. Gallium prices started to recover in 2017 and rose 40% to US$250 per kg. in 2018, as consumers restocked. In late November 2019, gallium prices sat slightly below US$300 per kg. - up from roughly US$200 per kg. in 2016.

Gallium is produced solely from bauxite and zinc extraction and refining processes. This has proved problematic for gallium production recently, as the supply of bauxite has been tight due to ongoing environmental checks, according to Argus. The USGS estimates there is up to 1 million tons of gallium in the world's bauxite resources, and said a considerable potential quantity could be contained in world zinc resources. However, it expects that only 10% of the gallium in world bauxite and zinc resources is potentially recoverable.

In a recent research note, BMO Capital Markets forecasts that the introduction of 5G "offers hope for a more aggressive upgrade cycle" of smartphones and other mobile wireless devices, just as deployment of 4G networks supported increased demand for smartphones when consumers bought new devices to take advantage of the new network capabilities. The bank cautions, however, that the "dynamic takes time to unfold and lags the initial launch of a network upgrade."

As 5G spectrum will only now start to be available for licensing and deployment, increased smartphone demand may still be several quarters away.

Once the deployment takes place, however, BMO anticipates that 5G sales will translate to growth in cobalt demand, as mobile devices consume 35% of global cobalt.

The increased demand should be true for REEs, as well, BMO says, even as certain mobile device producers attempt to secure more REEs from recycled materials.

Critical next steps for the spectrum include global standards, development and licensing, which will enable technology development and deployment.

The next WRC will be held in 2023 and will identify additional spectrum bands for 5G development to continue expanding the capabilities of these networks and coverage. This will include spectrum that would spread the technology into rural areas, which would require even more base stations and pave the way for new types of mobile devices - all of which would be good news for producers of gallium, REEs and cobalt.