Japan's curbs on high-tech materials exports to South Korea could backfire

TOKYO/SEOUL - Japan's curbs on exports of high-tech materials to South Korea could backfire in the long run, eroding its dominance over a key link in the global chip supply chain, suppliers and experts say.

Japan tightened restrictions last month on exports of 3 chipmaking materials to South Korea, home to memory chip titans Samsung and SK Hynix, threatening to disrupt the global tech supply chain as it provides about 70 percent or more of the restricted products to the world.

While the move highlights Japan Inc's firm place in the industry even after its once mighty giants like Sony lost out to nimble Chinese and Korean rivals, it has fueled concerns that its grip on the niche market for fluorinated polyimides, photoresists and hydrogen fluoride could loosen.

"South Korean companies cite quality and stable supply as reasons for choosing Japanese materials. But this has made them aware of the need for change and they are already taking action," a source at a Japanese materials supplier said.

"This will hit us like a body blow."

Samsung, for instance, has stepped up testing of non-Japanese photoresists and hydrogen fluoride, several sources familiar with the chip supply chain said.

Soulbrain, a supplier of hydrogen fluoride to the Samsung and Hynix - the world's No.1 and No.3 chip vendor, is aiming to match the purity of Japanese hydrogen fluoride at a plant that is still under construction.

Industry experts, however, note it would take time for South Korean firms to move up the value chain as the three high-tech materials are not easy to replicate.

Japanese suppliers "have built up their capabilities through decades-long experience of developing products", Atsushi Ikeda, Citigroup analyst, said.

"The accumulation is just too big for new players."

Top photoresist supplier Tokyo Ohka Kogyo says it takes up to two years to develop new resists.

'RARE EARTH SHOCK'

From South Korea, the curbs are likely to elicit a response similar to Japan's during the "rare earth shock" nearly a decade ago, when China's restriction on exports of rare-earth minerals used in electronic devices forced Japan Inc to find alternate supplies, industry participants said.

"Under the circumstances, anyone would do that," said the source at the Japanese supplier that has been hit by the curbs.

Seoul has already pledged to subsidize the domestic chip supply chain to accelerate the buildup of knowledge needed for firms to catch up in more advanced fields.

A senior executive at Soulbrain said the government had expedited paperwork so its new plant could be completed faster.

Soulbrain is looking to complete the construction by end-September and run tests to see if it can mass produce high-purity hydrogen fluoride, the executive said.

In photoresists, Samsung is trying to curb its reliance on Japan for advanced material, although sources say it faces high hurdles. The company, however, uses material from local supplier Dongjin Semichem for photoresists used in chips with less finer circuit patterns, Japanese supply chain sources said.

Only three Japanese firms, Tokyo Ohka, JSR and Shin-Etsu Chemical, currently supply high-quality materials used in advanced chip production technology known as extreme ultraviolet lithography globally.

REPERCUSSIONS

Tokyo Ohka and other materials makers grew hand in hand with electronics conglomerates NEC, Toshiba and Hitachi, the world's top chipmakers in the late 1980s.

Even after Japanese chipmakers lost ground to South Korea, the suppliers continued to thrive, thanks to early inroads in overseas markets and the strength of their local supply chains.

But in the wake of the latest curbs, prompted by a decades-old row between the Asian nations over compensations for forced South Korean laborers at Japanese firms during World War Two, suppliers in Japan are having to deal with repercussions beyond the three restricted materials, industry sources said.

Korean chipmakers are now asking Japanese suppliers to front-load shipments of materials Japan has large market shares of, from silicon wafers to polishing slurries, for fear of further restrictions, the sources said.

Japanese suppliers have so far refrained from directly commenting on how the curb will impact their business, claiming they had no inkling of the government's decisions beforehand.

"We have very good relations with our Korean clients," said Hideo Ohhashi, a spokesman for Tokyo Ohka.

"But this is up to politics." 

source: news.abs-cbn.com

US says Japan, South Korea 'soul searching' needed over damaging row

WASHINGTON - A senior US official said on Wednesday Japan and Korea needed to do some "soul searching" about political decisions that have damaged relations between the two US allies in recent months and called for calm words from their leaders.

Marc Knapper, deputy assistant secretary of state responsible for Japan and Korea, told a Washington think tank it was critical to ensure "productive and constructive relationships" between the allies in the face of shared challenges posed by North Korea, Russia and China.

He cited a joint patrol last month by Russian and Chinese aircraft near a group of islets claimed by both South Korea and Japan, calling it "a direct challenge to our three countries; an attempt to take advantage of the current frictions in Japan-South Korea relations."

"We must not let challenges in the region drive a further wedge between and among our three countries," Knapper said in address at the Heritage Foundation in Washington.

"Japan and Korea each suffer consequences when their bilateral ties worsen and we believe that each bears responsibility for improvement for their relations.

"We believe that some soul searching is in order about political decisions that have damaged bilateral trust in recent months and by the same token, we believe that prudence is required to prevent tensions contaminating the economic and security aspects of Japan-South Korea ties.

"Calm confident words from national leaders, we believe, will generate a similar response for their nations."

The unusually frank comments underlined the depth of concern in Washington about the dispute between the two long-term allies which has brought the relationship between Seoul and Tokyo to arguably its lowest ebb in more than half a century.

Diplomatic tensions intensified after a South Korean court last year ordered Japanese companies to compensate Koreans who were forced to work for Japanese occupiers during World War Two, a matter Tokyo says was settled by a 1965 treaty normalizing bilateral ties.

On July 4, in apparent retaliation, Japan restricted exports of high-tech materials to South Korea, sparking a boycott by South Korean consumers of Japanese products and services.

This month, South Korean President Moon Jae-in vowed that South Korea would not be "defeated again" by its neighbor and promised counter-measures after Japan's cabinet approved the removal of South Korea's fast-track export status from Aug. 28.

Seoul has also said it will review whether to maintain a military information sharing pact with Tokyo, which has been important in ensuring a coordinated approach to dealing with the crisis over North Korea's nuclear weapons. (Reporting by David Brunnstrom; editing by Grant McCool) 

source: news.abs-cbn.com