What Are Critical Minerals and Why Do They Matter for Semiconductors?
Critical minerals are non-fuel minerals essential to U.S. economic and national security, with supply chains vulnerable to disruption. Currently, 50 minerals are deemed critical by the U.S. Geological Survey (USGS), many of which are crucial for semiconductor manufacturing. The semiconductor industry relies on these minerals for various manufacturing processes including doping, metal interconnects, insulation, and etching.
Despite U.S. companies accounting for 45-50% of global semiconductor sales, domestic manufacturing capacity has declined dramatically from 37% in 1990 to only 12% in 2021. This vulnerability was starkly highlighted during the COVID-19 pandemic when semiconductor shortages caused production delays across industries, with the automotive sector experiencing a 26% decrease in production. The ongoing challenge of addressing critical mineral shortages is becoming increasingly vital to the global semiconductor industry.
Which Critical Minerals Are Essential for Semiconductor Manufacturing?
Semiconductor manufacturing depends on a complex array of critical minerals, each serving specific functions in the production process. The purity requirements for these minerals are exceptionally demanding, often requiring 99.9999% purity levels (known as "six nines" in industry parlance) that significantly exceed the needs of other industries.
Arsenic
Arsenic is essential for the production of gallium arsenide (GaAs) semiconductors, which operate at higher frequencies than silicon-based semiconductors and are crucial for wireless communications devices. The U.S. has been 100% import-dependent for arsenic since 1985, with China supplying 97% of global arsenic, followed by Peru and Morocco.
"The concentration of arsenic supply in China represents one of the most severe single-source dependencies in the semiconductor supply chain," notes one industry expert. The lack of substitutes for arsenic in GaAs applications makes this dependency particularly concerning.
Cobalt
Cobalt is used alongside copper in semiconductor chips to enhance conductivity and prevent electromigration. The U.S. currently operates one domestic mine that, combined with recycling efforts, supplies about 24% of domestic consumption.
While the U.S. imports cobalt primarily from Norway (22%), Canada (16%), Finland (12%), and Japan (12%), the true vulnerability lies further upstream. The Democratic Republic of Congo (DRC) supplies 70% of globally mined cobalt, with China controlling the processing of approximately 80% of the world's refined cobalt. Efforts aimed at revolutionizing the critical minerals sector could help address these supply chain vulnerabilities.
Gallium and Gallium Arsenide
Gallium is crucial for semiconductor fabrication as it conducts electrons more efficiently than silicon in high-frequency applications. The U.S. has no domestic production and 95% of consumption is in the form of gallium arsenide. China supplies 53% of gallium imports, followed by Germany (13%), Japan (13%), and Ukraine (5%).
In July 2023, China announced export restrictions on gallium, sending shockwaves through the semiconductor industry. "China's gallium export restrictions aren't just about trade—they're about leveraging technological dependencies for geopolitical advantage," says a semiconductor industry analyst. This development is part of the critical minerals race amid global tensions.
Palladium
Palladium is vital for plating applications in semiconductors, providing corrosion resistance and improving conductivity at connection points. While 16% of U.S. consumption is mined domestically in Montana, the majority comes from Russia (34%), South Africa (30%), Italy (8%), and Germany (8%).
Industry experts note that palladium's price volatility—with prices increasing over 400% between 2016 and 2021 before moderating—creates significant challenges for semiconductor manufacturers in terms of cost prediction and supply security.
Rare Earth Elements (REEs)
REEs are essential for communications and defense semiconductor applications. The U.S. produces approximately 10% of the global supply, with imports mainly coming from China (78%), Estonia (6%), Malaysia (5%), and Japan (4%). China supplies over 60% of world demand.
What's less commonly understood is that individual REEs have drastically different supply risk profiles. Heavy rare earths like dysprosium and terbium face more severe supply constraints than light rare earths like neodymium, with China controlling over 85% of heavy rare earth production globally.
Silicon
Silicon remains the most economically important mineral for semiconductors, forming the substrate for most chips. China dominates global production at 70%, followed by Russia at 7%, while U.S. capacity is limited to small domestic production across six facilities.
The manufacturing challenge with silicon isn't just volume but quality. Semiconductor-grade silicon requires an ultra-pure single-crystal structure, with impurity levels measured in parts per billion. This specialized processing capability represents a significant barrier to entry for new market participants.
Other Critical Materials and Chemicals
Several other materials play crucial roles in semiconductor manufacturing:
- Titanium functions as a barrier metal in semiconductor devices
- Scandium enhances electronic properties in specialized applications
- Fluorite and hydrogen fluoride are essential in etching and cleaning processes
- Noble gases (neon, argon, krypton) are used in high-pressure lasers for circuit patterning, with Ukraine supplying 90% of high-purity neon and 40% of krypton for U.S. chip manufacturing
- Phosphorus derivatives are utilized for surface treatment in etching processes
"The noble gas supply chain represents an underappreciated vulnerability," explains one industry expert. "When Russia invaded Ukraine in 2022, neon prices increased by 600%, threatening the viability of many semiconductor manufacturing processes."
Why Are Semiconductor Supply Chains So Concentrated?
The geographic concentration of semiconductor supply chains stems from multiple interconnected factors:
The location of mineral deposits is fundamentally geological in nature. Critical minerals are geographically concentrated in specific regions, with cobalt predominantly found in the DRC, lithium in Australia and Chile, and rare earths in China, Australia, and the United States.
China dominates refining operations despite not mining significant quantities of many minerals domestically. This dominance results from decades of strategic investment in processing capabilities, with China now controlling 50-80% of global processing capacity for lithium, cobalt, rare earths, and other critical minerals. Recent political developments are reshaping global commodity markets and further complicating this landscape.
Strategic investments have further consolidated control, with Chinese companies owning or financing 15 of 19 cobalt mines in the DRC. Similar patterns exist across other critical mineral supply chains.
Taiwan, China, and South Korea control over 80% of global semiconductor manufacturing, with Taiwan's TSMC alone producing over 50% of the world's chips. This concentration creates what industry insiders call a "single point of failure" in the global technology supply chain.
Cluster effects reinforce these concentrations, as existing hubs benefit from technological know-how, specialized workforces, and production economies of scale. The semiconductor industry requires extraordinarily specialized knowledge, with experienced process engineers often being more valuable than the physical manufacturing equipment.
Government policies including tax incentives, subsidies, and strategic investments have helped East Asian countries develop semiconductor manufacturing capabilities. Many of these policies were implemented decades ago, giving these regions a significant head start in building semiconductor ecosystems.
The consequences of this concentration became evident in 2010 when China banned rare earth exports to Japan during a territorial dispute, and again in 2023 with China's restrictions on gallium and germanium exports.
How Is the U.S. Addressing Critical Mineral Supply Chain Vulnerabilities?
The CHIPS and Science Act
The CHIPS and Science Act represents the most significant U.S. investment in semiconductor manufacturing, with $280 billion allocated over ten years. The act includes $52.7 billion for semiconductor manufacturing and workforce development, $24 billion in tax credits for microchip production, and $39 billion for building and modernizing semiconductor facilities.
Notably, the act dedicates $500 million specifically for strengthening global supply chains, addressing the upstream critical mineral dependencies that have historically been overlooked in semiconductor policy.
Key provisions include establishing a National Semiconductor Technology Center, creating a National Advanced Packaging Manufacturing Program, and restricting recipients from expanding manufacturing in China for 10 years.
The most innovative aspect of the CHIPS Act is its whole-of-supply-chain approach, addressing not just manufacturing capacity but also research, workforce development, and international partnerships.
Private Sector Investments
In response to the CHIPS Act, several major investments have been announced:
- TSMC expanded its planned investment in Arizona from $12 billion to $40 billion
- Micron announced a $40 billion investment in U.S. chip manufacturing
- Qualcomm and GlobalFoundries formed a $4.2 billion partnership for chip manufacturing
"The multiplier effect of the CHIPS Act has been extraordinary," notes one industry analyst. "Every federal dollar invested is attracting approximately $8 in private investment."
Additional Government Initiatives
The U.S. has implemented several complementary initiatives:
- A critical materials subcommittee coordinates federal R&D efforts for critical materials
- The Department of Energy has launched a $140 million demonstration project to recover REEs from mine waste
- Interagency coordination between the Departments of Defense, Energy, and State is strengthening efforts to stockpile critical minerals
- The Minerals Security Partnership (MSP) with allies ensures critical minerals are produced according to high standards
- The G7 Critical Mineral Plan fosters cooperation with allies to develop new mines, supply chains, and recycling initiatives
"The MSP represents a paradigm shift in how we approach mineral security," explains one policy expert. "Rather than each country attempting self-sufficiency, it recognizes the need for friendly-nation supply chains that distribute risk while maintaining standards."
Additionally, Australia's critical minerals grant bolsters innovation and strengthens international partnerships in this sector.
What Challenges Remain in Securing Critical Mineral Supply Chains?
Regulatory Hurdles
Outdated U.S. regulatory requirements make securing mining permits costly and time-consuming, with the permitting process for a new mine typically taking 7-10 years compared to 2-3 years in Canada or Australia. This regulatory friction discourages investment in domestic production.
Environmental and equity concerns create additional complications, especially when deposits are near protected or tribal lands. The proposed Thacker Pass lithium mine in Nevada illustrates these tensions, with legal challenges from environmental groups and Native American tribes delaying development despite its strategic importance.
Funding Gaps
Despite the CHIPS Act's substantial funding, research agency appropriation budgets for 2023-2024 are short by approximately 20% of what's needed to fulfill CHIPS Act authorizations. This funding gap threatens to undermine the act's effectiveness.
Meanwhile, China, Japan, South Korea, and the European Union are strengthening their critical mineral supply chains with substantial investments. China's five-year plan allocates $1.4 trillion to strategic industries including semiconductor manufacturing and critical minerals.
Geopolitical Risks
China's dominance over critical materials continues, with recent export restrictions on gallium and germanium highlighting the vulnerability of global supply chains. These restrictions are widely viewed as a response to U.S. export controls on advanced semiconductor manufacturing equipment.
The U.S. remains 80% dependent on China for critical minerals as of 2019, with particularly high dependencies for rare earths, gallium, and germanium. This dependency creates significant national security vulnerabilities.
Environmental and Social Considerations
The environmental footprint of mining operations presents a significant challenge, particularly as many critical minerals are found in lower concentrations than traditional metals, requiring more intensive extraction processes.
Modern mining technology can substantially reduce environmental impacts compared to historical practices, but public perception and opposition remain significant barriers to expanding domestic production.
How Can Recycling and Recovery Contribute to Critical Mineral Supply?
Recycling and recovering semiconductor critical minerals from existing sources represents a significant opportunity to enhance domestic supply with a lower environmental footprint than new mining operations.
Redwood Materials has partnered with Ford and Volvo to collect end-of-life lithium-ion batteries and extract lithium, cobalt, nickel, and graphite for reuse in new batteries. This closed-loop approach could eventually supply up to 30% of U.S. requirements for these minerals.
The Department of Energy has launched demonstration projects to recover REEs from mine waste like coal ash, phosphogypsum, and acid mine drainage. These sources contain significant concentrations of critical minerals that were previously overlooked.
Research efforts are identifying alternative materials that can replace critical minerals, with promising developments in reducing or eliminating cobalt in batteries and finding substitutes for rare earths in permanent magnets.
A circular economy approach to critical minerals could transform supply chains, with electronic waste containing 40-50 times the concentration of gold and other precious metals than naturally occurring ores. "Urban mining"—extracting materials from discarded electronics—may eventually become more economical than traditional mining for certain elements.
What Does the Future Hold for U.S. Semiconductor Manufacturing?
The U.S. is making significant strides toward rebuilding domestic semiconductor manufacturing capacity, but the journey will be long and complex.
In the short term, the U.S. will continue to rely heavily on foreign sources and allies for critical semiconductor minerals. Even with aggressive investments, developing domestic mines and processing facilities typically requires 5-10 years from discovery to production.
Long-term potential exists for a more secure supply chain, as comprehensive policy coupled with significant investment could establish stable domestic supplies for many critical minerals. Geological surveys indicate that the U.S. has significant untapped resources of lithium, rare earths, and other critical minerals.
The global nature of supply chains means it's impossible—and undesirable—to replace all foreign sources with domestic suppliers. Instead, the goal should be resilient supply chains with redundancy, transparency, and shared standards among trusted partners.
Policy recommendations to accelerate progress include:
- Updating regulations to streamline permitting processes while maintaining environmental protections
- Establishing tax credits and subsidies for mining and refining operations, similar to those provided for manufacturing
- Increasing supply chain coordination with key allies like Canada, Australia, and European partners
- Developing clear environmental, social, and governance standards to ensure sustainable production
While current investments through the CHIPS Act represent a crucial step forward, the scale of investment must match the scale of the global challenge to ensure U.S. competitiveness in semiconductor manufacturing. As one industry executive put it: "The CHIPS Act is not the end of the story—it's just the beginning of rebuilding America's semiconductor ecosystem."
FAQs About Critical Minerals for Semiconductor Manufacturing
What makes a mineral "critical" for the United States?
A critical mineral is defined as a non-fuel mineral essential to U.S. economic and national security with a supply chain vulnerable to disruption. The designation considers factors including import dependency, concentration of supply in politically unstable regions, and the mineral's importance to strategic industries like defense and telecommunications.
Why can't the U.S. simply mine all these minerals domestically?
The geographic location of mineral deposits is a fundamental limitation—some minerals simply don't exist in significant quantities within U.S. borders. Additionally, permitting processes for new mines can take 7-10 years, environmental considerations must be balanced with resource needs, and the economics of extraction may not be competitive with established foreign sources.
How did Taiwan become so dominant in semiconductor manufacturing?
Taiwan's dominance stems from an early strategic decision to focus on semiconductor manufacturing as a national priority. The government provided substantial support through research funding, tax incentives, and specialized education programs. Taiwan Semiconductor Manufacturing Company (TSMC) pioneered the "foundry" business model, focusing exclusively on manufacturing chips designed by other companies, which allowed it to achieve economies of scale unmatched by integrated device manufacturers.
What impact will the CHIPS Act have on U.S. semiconductor manufacturing?
The CHIPS Act aims to rebuild domestic semiconductor manufacturing through approximately $52.7 billion in direct funding and $24 billion in tax incentives. Early results include announcements of major private investments in U.S.-based manufacturing facilities from companies like TSMC, Intel, Samsung, and Micron. However, full implementation will take years, and the Act addresses manufacturing capacity more directly than underlying critical mineral supply chains.
Is recycling a viable solution for critical mineral shortages?
Recycling represents a promising complementary approach to mining, particularly for minerals used in consumer electronics with relatively short lifecycles. Recovering critical minerals from electronic waste, spent batteries, and industrial byproducts can reduce dependency on new mining operations while addressing environmental concerns. For some elements like gold, palladium, and cobalt, "urban mining" from e-waste can actually be more economical than traditional mining due to the higher concentration of these elements in electronic components.
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