<article><p class="lead">The introduction of 5G telecommunication networks — a demand driver for electronic minor metals — is slowing as the industry grapples with the US-China trade and technology war and economic uncertainty. </p><p>Semiconductor producers and telecom firms are looking to next-generation 5G networks and the <a href="https://direct.argusmedia.com/newsandanalysis/article/1877387">internet of things</a> — the connection of large number of devices, users, and machines — that it will facilitate as the largest driver of future demand. </p><p>Demand for electronic metals is expected to rise as new applications such as gallium nitride semiconductors in radio frequency devices gain market share. The volume of new devices that will be connected to 5G networks will increase demand for the range of metals used in semiconductors. The new fibre-optic networks needed for 5G will support demand for germanium and the larger data centres needed to process and store larger amounts of data will increase demand for indium lasers. </p><p>The speed of the transition to 5G is subject to the forces affecting global markets and in particular the trade and technology war between the US and China. The political fragility of the supply chains for producing 5G equipment was made clear when the US in June added Chinese telecom firm Huawei to a blacklist of companies that US companies cannot supply products to.</p><p>Despite a <a href="https://direct.argusmedia.com/newsandanalysis/article/1965068">relaxing of the restrictions</a>, which were replaced with a licensing system and several grace periods, the impact is apparent in Chinese manufacturing data. Chinese production of base station equipment plummeted in August to 70.7 units (10,000 channels) from 4,607 units in June (<i>see chart</i>). Base stations relay wireless signals to mobile devices in a cellular network and need to be more powerful to enable 5G. </p><p>The slump in output came after Beijing unexpectedly issued four 5G licences in June in response to the escalation of the trade war and the Huawei ban. The licences were expected to be issued in November, which could have required a sudden shift from producing 4G equipment to upgrades for producing more 5G equipment under new contracts. And the business model could have changed requiring agreements to be renegotiated. But the decline also undoubtedly reflects the impact of a ban on US products. Chinese base stations are dependent on US components. Huawei is the world's third largest semiconductor consumer and is still reliant on US chips. Shipments of some US semiconductor products was resumed to serve contracts and two 90-day grace periods were granted. But US companies are now required to apply to the government for licences to supply certain products.</p><p>The prospect of a slower roll-out of 5G services is not limited to China. Large US fibre-optics manufacturer Corning downgraded its guidance for 2019 optical communications sales to a 3-5pc year-on-year decline from a previous forecast of a 2-3pc increase. Several major carriers are further reducing capital spending on cable deployments, the company said, adding that some business customers have reduced their spending below anticipated levels. Corning expects business, government and telecom network optical communication sales to fall year on year in the second half of 2019.</p><p><div class="picture"><div><span class="pic_title">Gallium min 99.99pc spot prices cif Main Airport</span> <span class="units">$/kg</span></div><img src="https://argus-public-assets-us.s3.amazonaws.com/2019/09/25/placeholder25092019040419.jpg"></div></p><p><div class="picture"><div><span class="pic_title">China base station equipment output, NBS data</span> <span class="units">Units</span></div><img src="https://argus-public-assets-us.s3.amazonaws.com/2019/09/25/copyofbasestations25092019040501.jpg"></div></p></article>
