Guotai Haitong Securities Co., Ltd. (ASX: GTHT) has released a research report indicating that indium, a scarce strategic minor metal, is primarily a byproduct of lead, zinc, and tin smelting, making its supply relatively rigid. Indium phosphide is essential for high-speed optical communications, and the explosive growth in this sector is expected to drive demand for indium phosphide, consequently boosting indium demand. This has led to a notable short-term price increase for indium.
On the demand side, the boom in optical communications is fueling rapid growth in indium phosphide consumption. While the current direct impact on indium consumption from indium phosphide is limited, the sustained ramping up of optical module production over the long term could position indium phosphide as a key growth engine for indium. The report suggests focusing on companies related to indium and indium phosphide.
Supply Constraints and Price Surge
Global primary indium supply is relatively rigid, with limited growth potential. Global production of primary indium has remained around 1,100 tonnes annually, according to USGS data, with China accounting for approximately 70% of that total. Secondary indium mainly comes from recycling ITO scrap. Year-to-date, indium prices have risen sharply; SMM data shows the average price of crude indium has increased from 2,725 yuan/kg to 5,350 yuan/kg, and refined indium from 2,825 yuan/kg to 5,450 yuan/kg, representing gains of 96% and 93%, respectively—among the top increases in the strategic minor metals category. The report attributes this price surge to the expectation of growing demand from the indium phosphide sector, against a backdrop of rigid supply.
Booming Indium Phosphide Demand and Supply-Demand Imbalance
AI computing power is driving massive deployment of high-speed optical modules, which rely on indium phosphide as the substrate for core optical chips. This has caused a supply-demand imbalance for indium phosphide, pushing prices higher. According to SMM, year-to-date, prices for 3-inch and 4-inch indium phosphide wafers have risen by 31% and 36%, respectively. Additionally, export controls have been tightened; the Ministry of Commerce and the General Administration of Customs have included indium-related items, such as indium phosphide, trimethylindium, and triethylindium, in the dual-use item export control list, requiring licenses for export. This directly restricts the supply of key precursor materials for optical chips. Furthermore, from 2026, indium and indium products will be included in the export license management catalog, tightening China's exports and potentially limiting overseas indium phosphide production capacity.
Long-Term Growth Engine with Short-Term Consumption Dynamics
In the long run, indium phosphide is expected to become a core growth driver for indium demand. However, the current share of indium consumed by indium phosphide is relatively small. The report estimates that for a single 3-inch indium phosphide wafer (625 microns thick), the mass of indium is about 10.8 grams, excluding losses and yield. For 1 million 3-inch wafers, total indium consumption would be roughly 10.8 tonnes, less than 1% of global primary indium production. Including yield losses would increase this proportion, but it remains unlikely to challenge ITO targets as the primary consumer of indium in the short term. The report advises monitoring the pace of optical module production and improvements in indium phosphide substrate yields.
Risk Factors
Potential risks include changes in downstream demand, fluctuations in inventory levels, and progress in indium phosphide manufacturing processes.
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