China's Indium Phosphide Curbs Threaten AI Data Center Rollout - Mexico Business News

China’s export controls on indium phosphide, a compound without substitute in optical chips for AI data centers, have driven 6-inch wafer prices up 250% to US$5,000 and disrupted suppliers including Coherent, Lumentum, AXT, VPEC and LandMark Optoelectronics. With China producing 70% of global indium and AXT and Sumitomo controlling nearly 80% of substrate manufacturing, the curbs expose the photonics supply chain to a single-jurisdiction chokepoint. For Mexico, where authorities canceled 1,126 mining concessions covering 889,512ha in February, legal certainty in concession regimes becomes a strategic factor in attracting critical mineral investment tied to supply chain diversification.
China’s export controls on indium phosphide (InP), a compound with no substitute in the high-speed optical chips that power AI data centers, have emerged as a trade weapon that executives and analysts say could disrupt the global buildout of AI infrastructure, pushing the price of a 6-inch InP wafer up 250% to US$5,000 since restrictions began in February 2025.
The urgency reached the highest levels of US-China diplomacy. Days after Nvidia-backed chipmaker Coherent warned of an InP shortage in an early May earnings call, CEO Jim Anderson joined a US business delegation accompanying President Donald Trump to China, in part to raise delays in China’s export licenses for the material, three sources familiar with the matter said. The issue was also discussed in Seoul between top trade negotiators of both countries ahead of Trump’s May 14-15 summit with President Xi Jinping, according to two US government officials and a person briefed on the talks.
“InP is one of several supply chain bottlenecks collectively gating AI data centre buildouts,” said Konrad Wang, a research analyst at SemiAnalysis.
A Material Without Substitutes
Demand for InP is rising as data center developers shift from electrical signals through copper wire to photonics, transmitting data as light through optical fibers. Nvidia announced US$2 billion investments each into US photonic product makers Coherent and Lumentum in March, while Marvell Technology acquired semiconductor startup Celestial AI last year to access its photonics work.
China produces 70% of global indium output as of 2024, according to the US Geological Survey, and its InP controls extend a playbook already tested with rare earths, whose export curbs have disrupted automotive, semiconductor and aviation supply chains since last year.
“Beijing is developing a more granular ‘materials chokepoint’ toolkit,” said Paul Triolo, Partner, Albright Stonebridge Group. “Rather than blocking finished photonics products outright, it can slow or condition the export of the upstream compounds, substrates, metals … that determine whether the optical-module ecosystem can scale quickly enough to meet hyperscaler demand.”
Ripple Effects Across the Optical Supply Chain
AXT, the world’s second-largest InP substrate producer and a major Coherent supplier, said in May that “InP export permits represent the most significant challenge we currently face.” The company manufactures most of its substrates in China; its Chinese subsidiary received its first export permits only last June and carries a significant order backlog.
“The restrictions ripple through the entire optical supply chain,” Wang said. Lumentum is sold out through 2028 despite quadrupling output, while Taiwanese optical products makers VPEC and LandMark Optoelectronics faced substrate disruptions tied to AXT’s permit delays. At least two major US photonics chipmakers have approached industry organizations for help with export licenses, a source familiar with the matter said.
Alternatives are limited. AXT and Japan’s Sumitomo Electric Industries together account for almost 80% of global InP substrate manufacturing, with JX Advanced Metals holding around 10%. LandMark signed a long-term InP supply contract with Sumitomo in April, but a person familiar with China’s photonic chip industry said Sumitomo consumes much of its substrate output internally, leaving the global market undersupplied. Coherent is doubling InP wafer capacity at its Texas plant this year and plans to more than double it again by end-2027, though analysts note new plants typically take two to three years to come online.
China’s curbs have meanwhile opened space for domestic producers Yunnan Germanium, Guangdong Xiandao and Zhuhai Dingtai Xinyuan. Yunnan Germanium announced a 189 million yuan (US$28 million) investment in April to expand capacity to 450,000 InP wafers annually, after shipments surged 74% in 2025. Guangdong Xiandao, through subsidiary Guangdong Xianrui, launched a project targeting 40 tons of InP crystals per year. Both are seeking export approvals, though overseas shipments are likely to be limited, a source at a major Chinese InP manufacturer said, adding that lengthy qualification cycles make customers such as Coherent and Lumentum unlikely to switch suppliers easily.
Supply Security Puts Mining Jurisdictions Under Scrutiny
The chokepoint strategy raises the stakes for mineral-producing countries positioning themselves in diversified supply chains, including Mexico, where regulatory enforcement is reshaping access to mineral assets. In February, federal authorities reported that 1,126 mining concessions had been “recovered” through cancellation procedures, covering 889,512ha across six states, with 713 located within Natural Protected Areas; most cancellations were driven by non-payment of mining rights and the omission of mandatory statistical and technical reports, according to Mexico Business News (MBN).
Under Article 42 of Mexico’s Mining Law, grounds for cancellation include failure to pay mining duties for two consecutive fiscal years and failure to submit required reports for two consecutive years or five non-consecutive years, MBN reported. Concessionaires retain remedies, including administrative review, proceedings before the Federal Administrative Justice Court and amparo actions, and reinstatement remains possible even in complex scenarios, wrote Santiago Suárez Sevilla, Partner at Servicios Legales Mineros, for MBN.

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