* China wants to sell finished goods, not raw materials
* China building up military, needs germanium
(Adds background, details, comment from traders from para 3)
LONDON, Feb 15 (Reuters) - Spot prices of germanium dioxide jumped to their highest levels in Europe in more than two years this month as supplies of the material from China fell short of demand, traders said.
Germanium dioxide GERM-DIOX-LON, used in speciality glass for wide-angle camera lenses, has jumped to around $950 a kg, the highest since early November 2008. Later that same month, prices plummeted as consumers feared the financial crisis would lead to a drop-off in demand and slashed their stocks.
Current levels compare with around $900 a kg last month and $570 a kg in September last year.
"We have become very dependent on China for raw materials; this year we will pay the price. Rather than sell germanium dioxide, which now has a 5 percent penalty tax if exported, China wants to sell the lens," a germanium trader said. "Germanium is typical of the Chinese attitude today. China Inc has shifted from a supplier of raw materials to a vendor of value-added finished goods ... People are a lot more relaxed about demand; they know the market needs the material."
Germanium metal GERM-LON, used to make optical fibres for infrared devices and lenses for military equipment and as a semiconductor in electronic devices, is up at around $1,300 a kg from levels near $1,175 in late December last year.
Germanium plant closures in August and September last year, partly because of attempts to cut environmental pollution, have also left the market short of material, traders said.
"The Chinese government said last year it will buy germanium for its domestic stockpile, and the U.S. has basically liquidated its stockpile," another trader said.
"China is embarking on a huge build-up of its military. This is forcing other Asian countries also to build up their military ... The result is more demand for germanium."
The U.S. withdrawal from Iraq and a reduced need for investment in military equipment in the world's largest economy, however, could offset some demand growth from Asia, he added.
(Editing by Jane Baird)
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