Virtual roundtable: What impact is China’s export ban on critical materials for optics having?

Since China announced a ban of critical material exports to the U.S. last year, we’ve been paying close attention to how this move is impacting optics-based organizations within our community.  We reached out to Dave Shelton, president of AmeriCOM, Sam Rubin, CEO of LightPath Technologies, and Justin Sigley, AmeriCOM chief scientist—who are intimately aware of germanium’s role within optics manufacturing—and asked them an array of questions. We’ll continue to follow the situation as it evolves.

Laser Focus World: What are the immediate implications of China’s export bans of germanium, gallium, and other critical materials on optics manufacturers in the U.S.?

Dave Shelton: In support of our mandate to bolster the U.S. optics manufacturing industrial base, AmeriCOM is analyzing the supply chain issues related to germanium and the impact on optics manufacturers—and particularly the defense industry.

China imposed export restrictions of critical materials including germanium and gallium to the U.S. in August 2023, and a full ban in late 2024. For U.S. optics manufacturers, this has led to increased prices, limited availability, and long lead times. Uncertainty in delivery times is probably most concerning to supply chain managers for electro-optical infrared (EOIR) sensors.

Sam Rubin: Very significant. China has now singled out the U.S. and in particular any dual-use applications, which are most if not all of the germanium optics within the U.S. As of now, despite having some crystal growth capabilities, we still depend on China for the ore, and we’re probably years away from an alternative supply.

LFW: How do rare-earth element and other critical materials’ export restrictions affect the availability and pricing of optics components within the U.S.?

Justin Sigley: Since January 2023, the price of germanium has increased by approximately 75%—with an increase of 44% just within the past year. The United States Geological Survey (USGS) estimates the price of gallium may increase by as much as 250% due to China controlling nearly 98% of the world’s gallium supply, according to multiple sources. The increased costs are passed along the optics supply chain, but the larger economic impact will be felt due to the disruptions to other industries that rely on these components. In 2023, the U.S. imported approximately $45 million in germanium, $3 million in gallium metal, and $110 million in gallium arsenide (GaAs) wafers for a total of $158 million, yet the USGS estimates a Chinese germanium and gallium export ban will result in a $3.5 billion decrease in U.S. gross domestic product (GDP).

Rubin: Yes, the price of germanium has doubled since the initial launch of export restrictions in July 2023. We do not yet know what the prices are now after the most recent restrictions, because Chinese vendors will not even quote germanium until they know whether they can ship it. In January, China was drafting new end-user statements and starting a new export-control process, and we don’t know how long it will be before any new licenses are issued, if at all.

LFW: Are optics manufacturers within the U.S. able to source rare-earth and other critical materials from other countries, or are there significant limitations in terms of alternatives?

Rubin: Russia was the second largest source, but that is shut down since the sanctions imposed on Russia. I am not aware of any other significant source of ore.

Shelton: For germanium, the U.S. has historically been importing from China, Belgium, Germany, and Russia. The war in Ukraine and sanctions severely reduced imports from Russia, and the majority of the U.S. germanium supply comes from China. Much of the material from Belgium is sourced from the Democratic Republic of Congo, which is increasingly falling under the influence of China. There are alternative sources such as Canada or domestic germanium-rich deposits including tailings sites, but there is almost no domestic industry to refine and process this material into optical-quality feedstock.

LFW: How do rare-earth and other critical material shortages impact the production timelines for optical equipment used by industries like defense, telecommunications, and consumer electronics?

Sigley: We’ve heard anecdotal evidence that lead times for germanium to optics manufacturers exceeds 40 weeks. Shortages and long lead times are where the critical minerals ban will have its greatest economic impact as tanks sit in production lines waiting for sights, and satellites can’t launch without solar panels.

Rubin: In the very short term they don’t yet, since there are still some inventories of germanium in different stages of the production processes. There is also some germanium available for recycling that can be done within the U.S. or Europe. But we expect to see some prioritization taking place, possibly even driven by the government. Industries that have no alternative (such as semiconductors) might get prioritization over industries like optics that have alternatives.

LFW: What steps are optics manufacturers within the U.S. taking to mitigate the effects of China’s rare-earth and other critical material export bans? Are there efforts to diversify supply chains?

Rubin: Naturally everyone’s first inclination is to find other sources of germanium and gallium—but there simply aren’t any. Once customers realize there isn’t a magical solution to the germanium supply issue, they switch to use other materials such as chalcogenide glass. But this requires redesigning the optics, a process customers naturally want to avoid if they can.

Sigley: Some manufacturers have stockpiled materials because they anticipated supply disruptions. Many manufacturers are also looking toward alternative materials or designs that minimize the amount the amount of germanium required.

LFW: To what extent can optics manufacturers rely on recycling or reprocessing rare-earth materials as a long-term solution?

Rubin: The U.S. Department of Defense (DoD) has made some investments to build up such capacity within the U.S., and companies such as E.R. Precision Optical Corp. also do this. But it’s a very temporary solution. There is a stockpile of old germanium windows and optics that was accumulated by the Defense Logistics Agency (DLA), but it only takes us that far. Again, more likely, the new germanium made from recycled optics would go toward applications deemed critical that have no alternative.

Shelton: For germanium, recycling currently accounts for about 30% of our domestic supply, and it will continue to be a critical source of material. But it’s not a long-term solution because consumption exceeds supply. As our demand for fiber optics and electronics increases, more materials will be required. There are also materials that can’t easily be recovered for recycling, such as critical minerals used within satellites or missile domes. Recycling will play a vital role in securing our critical minerals supply chain— especially during the next few years, while alternative sources of materials are sought, and alternative materials are developed.

LFW: Are there technological advancements or materials science innovations that could reduce the dependence on rare-earth elements or critical minerals for optical components?

Sigley: Technological advancements and materials science innovations could reduce the dependence on rare-earth elements. Innovative optical designs incorporating freeforms or metasurfaces could reduce the size or number of optical elements within a system, and reduce the amount of rare earths required. Alternative materials such as chalcogenides or ceramics could potentially replace germanium optics for some applications, but these materials face their own challenges and have not yet achieved the manufacturing readiness level of germanium optics.

Rubin: Absolutely. Chalcogenide glasses have come a long way within the past 10 years. Chalcogenide glass today (like LightPath’s BlackDiamond) is mass produced in very high quality. These are not the old chalcogenides produced in small batches with variation between batches and consistency problems. Production of chalcogenide now is done in high-volume manufacturing, and results in materials that already do get used for many applications beyond germanium. The Naval Research Laboratory has also developed an entire portfolio of additional chalcogenide materials that have unique properties such as a negative thermo-optic coefficient, thermo-optic coefficient of zero, true multispectral performance (580 nm to 18 µm), and more.

LFW: Is there potential for greater collaboration between the U.S. and other countries (Australia, Canada, or European nations) to secure rare-earth supplies for optics and other high-tech sectors?

Shelton: There is potential and we’ve already seen government funding going to Canadian-based companies to develop U.S.-friendly critical mineral supplies. There are also mines within the U.S. that ship materials to Canada for refinement and processing. But many of these friendly countries such as Canada, Australia, and European nations are in a similar situation where they are reliant on Chinese exports of critical materials. Domestic or friendly nation supplies will need to be developed to support the total domestic critical mineral needs.

Rubin: Always better to collaborate. But the commercial world is pretty good at finding the best way to do this without much government involvement.

LFW: How might China’s rare-earth export bans reshape the global optics manufacturing landscape within the next five to 10 years?

Rubin: More than anything else, it will accelerate the on-shoring and development of more manufacturing within the U.S.

Shelton: Germanium production within North America only stopped because it couldn’t compete with the low price of material coming out of Chinese sources. Within five to 10 years, it is likely these capabilities will be reestablished and the reliance on Chinese exports will no longer be needed. A critical point for the government to consider is how to ensure the survival of the North American production environment when Chinese export bans end.

LFW: What are some potential long-term shifts within the optics industry that could result from a continued reliance on Chinese rare-earth materials?

Sigley: I expect we’ll see the use of alternative materials grow—especially for commercial applications that are more sensitive to price. There is also the possibility that commercial optics manufacturing will shift offshore to countries with more secure access to rare-earth resources. For defense applications, we may see increased collaboration with friendly nations that have access to rare-earth materials.

LFW: Could we see optics manufacturing shift to countries with more secure access to rare-earth resources, and what might this mean for the U.S. optics industry in the future?

Rubin: The more China imposes such restrictions, the less it makes sense to do optics there—not just buying materials. Once the raw material is made within the U.S., there is far more economical incentive to do more of the manufacturing steps here, such as lens fabrication, etc., so we expect to see more optics fabrication come back to the U.S.

Sigley: In the long term, secure access to optical materials can and should be achieved within North America.

LFW: How do rare-earth export bans impact the competitiveness of U.S. optics manufacturers on a global scale? Are they losing ground to companies within other countries with more stable supply chains?

Shelton: In the case of germanium, most of the market is for defense applications. It is unlikely this manufacturing will move offshore—new sources of supply will be established.

LFW: How might these disruptions in the rare-earth supply chain affect pricing of high-precision optics for aerospace, medical imaging, and electronics applications?

Sigley: We’re already seeing the price and lead times of precision optics increasing due to reduced supply of critical minerals. One of the biggest complaints we’re hearing from the industry right now is the uncertainty in the supply chain—with orders for raw materials going unfulfilled or canceled. Some companies have had to refuse jobs because of uncertainty in sourcing materials and this, of course, affects their bottom line. Those that source materials at a higher cost are forced to pass some of these costs down to the consumer.

Rubin: Increases in raw material costs get passed on, so ultimately the price of optical components made of such materials also goes up.

LFW: Are there opportunities for U.S. optics manufacturers to innovate in terms of alternative materials or manufacturing techniques to lessen the dependency on rare-earth elements and other critical materials?

Shelton: Certainly. New manufacturing methods for advanced freeforms and metasurfaces can lead to optical systems that require fewer components and rare-earth elements. New materials that replace or reduce the dependency on rare earths have been developed and are starting to make their way to shop floors. There is great potential for optics manufacturers to come up with innovative ways to improve manufacturability, repeatability, and reliability of these materials and methods in an economically viable way.

LFW: How do optics manufacturers balance cost considerations with the need to adopt new technologies or materials to mitigate risks associated with rare-earth/critical-material shortages?

Shelton: Einstein said: “If we knew what it was we were doing, it would not be called research.” There is always inherent risk in research and development, but a company that doesn’t innovate will soon find themselves losing business to competitors that do. It’s up to company leadership to perform a risk assessment, identify their exposure to risks associated with rare-earth shortages, and determine whether mitigating the risk is worth the effect on their bottom line.