Semiconductors have been likened to the ‘picks and shovels’ of the AI boom.
It seems like an unlikely partnership, tech and mining; yet this is an emerging field brimming with opportunity. One of those segments includes supplying raw materials for the semiconductor industry.
As you probably know, interest in semiconductors has exploded over the last 12 months thanks to a boom in artificial intelligence.
If you’re unfamiliar with the link, semiconductors have been likened to the ‘picks and shovels’ of the AI boom. In other words, the vital tools needed to expand AI’s reach throughout the global economy. No doubt, this is a sector offering massive growth opportunities. For better or worse, corporations are rapidly adopting AI into their workplace. This is an unstoppable trend.
The AI revolution promises major disruption, especially within the white-collar sectors like law, accounting, and finance. That could devastate the many professionals who could lose their jobs in this new AI era.
Still, it is set to become a boon for corporations leveraging greater productivity. From the graduate to the experienced practitioner, no one’s immune from the threat of AI.
But as they say… ‘If you can’t beat them, join them!’
The resource sector may not seem like an obvious choice to do that. But recall the blowup in gallium and germanium supplies last year. Two minerals critical in semiconductor manufacturing.
China has a firm grip on global supply and used its dominance to retaliate against Western trade pressures in early 2023. Given the country supplies almost 80% of the global market, the announcement of China’s germanium and gallium restrictions last year created a major stir in the market.
A small handful of explorers surged on the back of these geopolitical rumblings. But are there any other critical minerals set to play a key role in semiconductor manufacturing?
Demand for HPA is diverse and driven by two MAJOR growth drivers: renewables and artificial intelligence.
A true ‘future-facing metal.’ Yet, so few understand or know about the important role of high-purity alumina. According to Grand View Research, the global HPA market was valued at around $3.2 billion in 2022.
However, that’s expected to grow at a compound annual growth rate (CAGR) of around 22% from 2023 to 2030. But what exactly is high-purity alumina? HPA is an ultra-refined form of aluminium oxide with a purity exceeding 99.99%! Unrefined aluminium tends to contain small amounts of trace elements like silica and iron, which gives it vastly different properties from HPA.
But once these ‘impurities’ are removed, the magic of HPA begins to emerge. High transparency, chemical inertness, high thermal conductivity and resistance to thermal shock… are some of the properties that make HPA ideal for semiconductor manufacturing.
The material is used to build the tiny wafers and insulating layers surrounding the chips. Yet, this is not the only market for this unique commodity.
It is transparent like glass but has far superior strength. This means it’s used for optical lenses, medical equipment and specialised windows. In fact, purified alumina is so strong it’s used as ‘transparent armour’ for the military.
Meanwhile, it’s perfect for making scratch-resistant camera lenses and smartphone screens. But the applications are broader, still.
HPA plays a critical role in lithium-ion batteries. Here, it acts as something known as a ‘separator.’
A thin, porous membrane that divides the positive and negative electrodes (anodes and cathodes) in a battery cell. Separating the electrodes also allows the free flow of ions during charging and discharging battery cycles.
This is critical for preventing short circuits in EV batteries, thereby eliminating the problem of spontaneous explosions that have plagued electric vehicles. Yet, the biggest demand driver for high-purity alumina comes from the LED sector.
According to a report by Grand View Research, this accounts for 49% of overall demand.
You can see the full demand breakdown below:
There are two things to note here: ‘phosphor’ refers to the light-emitting sector, while ‘sapphire’ refers to the specialised glass derived from HPA.
Commodity markets offer enormous opportunities, especially those tied to minerals with unique properties and wide technological applications.
That’s a big change from the last commodity boom of the early 2000s. Here, the focus was on bulk-tonnage iron ore and base metal operations, which fed a hungry Chinese infrastructure boom.
However, I believe investors will need to be much more targeted with their investment choices in the years ahead.
The coming resource boom may not be a tide that floats all boats as it did during the last cycle. Specific commodities will feature prominently, just like lithium has over the last few years.
And it is those companies that can value add and find a niche in the market that could benefit the most.
James Cooper runs the commodities investment service Diggers and Drillers. You can also follow him on X (Twitter) @JCooperGeo
