Economic Observer reporter Wang Yajie

Someone had already ordered the goods in advance before they were produced.

In early November, a spot metal indium trader in East China told Economic Observer reporters that his 7N high-purity indium (indium with a purity of 99.99999%) had recently encountered such a situation.

Some customers no longer wait for the goods to arrive before buying, but instead sign long-term agreements (hereinafter referred to as "long-term agreements") in advance, locking in the future quantity of goods for a period of time.

The stolen item is a rare metal - indium.

The sales manager of an indium phosphide substrate manufacturing enterprise (hereinafter referred to as the "substrate enterprise") told Economic Observer reporters that last year, the company only sporadically purchased 7N high-purity indium, mainly for research and development and testing.

Starting from the second quarter of this year, the situation has changed.

Enterprises are taking the initiative to negotiate long-term agreements with upstream companies for one to two years, and determining in advance how much goods they can receive each quarter. At the same time, downstream optical module manufacturers are also booking substrate production capacity from this company.

That is to say, if a company locks in raw materials upstream and looks downstream, it also becomes a locked object.

At the policy level, the strategic resource identity of indium has been further clarified this year.

The Implementation Regulations of the Mineral Resources Law of the People's Republic of China (State Council Decree No. 839), which will come into effect on June 15, 2026, establish a strategic mineral resources catalog management mechanism. On October 12th, with the approval of the State Council, the Ministry of Natural Resources, together with the National Development and Reform Commission, released the "Catalogue of Mineral Resources", in which indium was listed as a metallic mineral. At the policy level, it is continuously strengthening its strategic resource positioning.

However, the supply of indium cannot immediately expand just because demand increases.

Li Aimin, the head of indium business at a zinc smelting enterprise, told reporters that indium is mainly recovered during the process of smelting zinc. The amount of indium contained in zinc ore basically determines how much indium can be recovered in the end.

Therefore, there is a clear upper limit to the supply of indium.

Squeeze into the inventory list

In the past, the main use of indium was for display panels. It is needed in both mobile phones and TV screens. In the past year, with the heating up of the artificial intelligence and computing power industry chain, indium has gained another important destination: the production of optical chips.

Optical chip is the core chip responsible for converting optical and electrical signals in optical modules. The optical module can be simply understood as a "high-speed channel" that connects servers and transmits data. The faster the development of artificial intelligence applications, the greater the demand for data transmission, and the stronger the demand for optical modules.

The production of optical chips requires the use of a material called indium phosphide substrate. The substrate can be understood as the "basic wafer" used in the production of optical chips, which is an important upstream raw material for optical chips.

The first to feel the above changes are upstream material companies and traders.

The sales manager of the above-mentioned indium phosphide substrate material stated that in earlier years, his company's orders were mainly small batch, quarterly rolling purchases, with customers concentrated in optical chip design manufacturers and microwave RF device manufacturers.

The newly added framework long-term agreements this year mainly come from the computing power industry chain of optical modules. However, the main companies that sign contracts directly are the top enterprises, and most small and medium-sized optical module manufacturers still indirectly acquire goods through optical chip manufacturers.

The purchasing list in the hands of traders has also undergone similar changes.

A trading company in East China reported that there has been a significant increase in inquiries and long-term agreements for 7N high-purity indium this year, with new demand concentrated in indium phosphide substrate material enterprises (hereinafter referred to as "substrate enterprises").

With more customers, upstream enterprises have higher requirements for selecting customers.

Smelting and purification enterprises refer to enterprises that further purify and process the crude indium produced in the zinc smelting process into indium materials of different purities. The above-mentioned traders stated that these enterprises will now prioritize the long-term operational stability of their customers.

This trader has a clear feeling: new customers want to obtain a long-term agreement quota for 7N high-purity indium, and the negotiation cycle has been significantly extended compared to the previous two years.

Qin Zhihai, the sales manager of a target material manufacturer (targeting the panel industry and processing indium materials into conductive target materials, belonging to the traditional downstream of indium), has also received inquiries from substrate companies, but the proportion of such orders in the overall business of the manufacturer is currently very low.

The target material manufacturers mainly produce target grade indium, which is indium material that meets the production standards for panel conductive films and is processed into conductive targets. 7N high-purity indium is not the main product of this manufacturer. The ultra-high purity indium required for optical chips is mainly provided by specialized high-purity material suppliers.

The procurement manager of a display panel manufacturer explained to reporters that the source of indium comes from zinc smelting and recycling. It is only divided into two routes during the purification process: one meets the standards for panel target materials, and the other increases the purity to 7N and supplies it to optical chip manufacturing enterprises. Afterwards, the two supply chains operated independently.

This panel manufacturer purchases pre processed ITO target materials. ITO target material, also known as indium tin oxide target material, is the core raw material for conductive thin films on panel screens.

Due to the lower requirements for indium purity in the panel industry compared to the optical chip industry, the manufacturer's procurement scale and supply pace have been relatively stable this year.

But in the substrate industry, the focus of customers has changed.

The sales manager of the substrate company mentioned above said that new customers are now more concerned about whether they can obtain stable production capacity in the next two to three years. In contrast, orders for buying a small batch of spot goods temporarily are decreasing.

Why are these companies in a hurry to lock up their goods in advance?

Because there is a long time gap between placing an order and building new production capacity.

Lock quantity, not price

The way of grabbing goods in this round is somewhat special. Customers first lock in the quantity of goods, but are not in a hurry to lock in the price.

The sales manager of the substrate enterprise mentioned above introduced that the commonly used framework long-term agreement in the industry will stipulate three things: the supply quantity, when the delivery will be made, and who can receive the goods first.

As for the price, it is usually not fixed for several years at once, but fluctuates within a certain range based on market prices. For example, the price can be set within a floating range of about 20%, and the settlement price can be periodically reconfirmed.

For substrate companies, directly locking in price risks is too high.

Because the production of substrates also requires the use of 7N high-purity indium and high-purity phosphorus. If the prices of these raw materials rise significantly and the substrate prices are predetermined in advance, the profits of the enterprise may be eaten up by the cost of raw materials, and even the more they are sold, the greater the pressure.

Downstream customers are also unwilling to lock in prices and quantities completely.

Although the demand for computing power is strong, there will also be cyclical changes. If the demand for optical modules cools down in the future, the large amount of goods that companies previously signed at higher prices may become inventory and cost pressures.

So, the upstream and downstream of the industrial chain finally chose a compromise solution: first determine the quantity and delivery order of goods, and the price will change with the market.

Yu Yan, the procurement and supply chain manager of an optical module manufacturer, told reporters that they usually use long-term contracts to meet basic needs and then fill temporary gaps through spot orders.

In the contract, both parties will also agree on the priority of supply. The supply chain team should continue to communicate with substrate companies and optical chip suppliers to ensure the subsequent production capacity as much as possible.

What really accelerates this competition for production capacity is the increasing production of 1.6T high-speed optical modules.

The 1.6T high-speed optical module is a new generation of optical modules with higher transmission speed. With the increasing demand for such products, optical module manufacturers can see farther orders in advance, but upstream substrate companies are not expanding production as quickly.

Yu Yan said that building a new substrate production line usually takes 18 to 24 months. If we continue to purchase according to the past 'how much is needed, how much is temporarily bought' method, by the time we truly need it, it is likely that we will no longer be able to allocate production capacity.

Currently, optical module manufacturers mainly focus on high-quality indium phosphide substrates.

Yu Yan explained that optical module manufacturers do not have their own equipment and processes for producing substrates. Even if 7N high-purity indium is purchased, it cannot be processed into usable substrate wafers in the factory.

Therefore, they directly purchase qualified substrates and entrust the purification, single crystal growth, and processing work to upstream professional enterprises.

The demand is transmitted from downstream to upstream, but when it comes to the zinc smelting process, things are not that simple.

Indium is a byproduct of zinc smelting process. The so-called associated products refer to another product that is incidentally recovered by enterprises during the production of their main products.

Li Aimin said that companies will not increase their zinc smelting capacity alone just because of the increase in demand for indium.

The number of zinc smelters operating depends first on the price of zinc ingots, processing fees, energy costs, and environmental requirements. Indium recycling is just the last step.

If there is not enough indium containing raw material, no matter how large the recycling equipment is, there will be nothing to recycle.

Enterprises can improve the recovery rate of indium through technological transformation. For example, increasing the recovery rate from 72% to 77% and recovering more indium from the original waste residue.

But this approach can only bring a slight increase and cannot double the production of indium.

In the business accounting of enterprises, zinc business is still the main consideration factor. The rise in indium prices can increase by-product revenue and encourage companies to maximize recovery rates, but it will not solely determine whether zinc smelters will expand production.

After The Directory

In Li Aimin's view, indium is listed as a strategic mineral and will not directly change the total supply of indium in the short term.

The changes it brings are more about making enterprises pay more attention to the recovery of associated rare metals such as indium and germanium in the future.

In the future, resource comprehensive utilization technology renovation projects, which optimize and transform production processes, may pay more attention to the recycling efficiency of these rare metals.

At the same time, substrate companies are indeed expanding production, but new capacity will not appear immediately.

The sales manager of the substrate material company mentioned above said that his company is promoting the expansion of substrate production capacity, with the increase coming from the addition of crystal growth and polishing equipment, as well as polishing processes and improving product yield. The overall ramp up cycle from production line construction and debugging to product reliability certification by downstream customers is about one and a half years.

The sales manager mentioned above said, "Expanding production is not just about buying equipment. Improving yield and passing customer reliability verification are the key to truly releasing effective production capacity

If multiple substrate companies expand production simultaneously, the demand for high-purity indium will further increase, putting pressure on the entire industry chain. Yu Yan said that their supply chain team continues to track the upstream raw material situation. Once a substrate manufacturer's raw material supply is unstable, there is a risk in the corresponding production capacity quota.

The traditional display track is also strengthening its own supply chain.

Qin Zhihai said that the factory will increase its safety stock appropriately this year, but will not stockpile a large amount of goods. The price of indium is relatively high, and inventory will occupy a lot of capital. Storing too much will actually bring pressure to enterprises.

At present, the performance of long-term agreements signed between the company and smelting and purification enterprises is still stable, but the waiting time for temporary purchase of spot goods has significantly increased.

They will prioritize maintaining long-term cooperative relationships and ensure the use of materials for the main panel business.

On one hand, there are constantly increasing orders, while on the other hand, new production lines are still under construction and climbing.

In the opinion of the person in charge of the substrate company, "Capacity release cannot be rushed after all

(Author Wang Yajie)