South Korean chip and display manufacturers have decided to switch to local materials. This may affect Japanese companies in the long run.
After a heavy blow to the supply chain, Korean companies had to look for other sources to maintain production. LG Display began using corrosive gas produced by South Korea’s SoulBrain last November. Previously, the company used ultra-pure corrosive gas imported from Japan by Stella Chemifa. An LG official said “Because we dilute it to a very high level, there is no need for the product to be manufactured exactly as it was in Japan.”
A Korean semiconductor facility (photo: SK Hynix)
In July 2019, Japanese and South Korean governments had a controversy that led to Japan’s passage of export restrictions, high-tech materials such as corrosive gas, contrast and plastic Pi. New export permits were delivered to South Korea. These are all important materials needed for the screen industry, semiconductors, two economic pillars of Korea. Part of the restriction has gradually been removed, but its effect remains.
For Stella Chemifa, the net profit in the last financial year has dropped by 18%. Corrosion gas exports decline due to changes in commodity export policies to Korea. Morita Chemical Industries continues to deliver until early January, although production has been reduced by up to 30% until export restrictions have been imposed. Many Korean companies therefore must replace the supply with home-made goods, avoiding supply disruptions.
The Korean and Japanese governments have had fierce controversies, leading to economic retaliation (photo: Nikkei)
A Morita Chemical director admitted: “It is very difficult for us to regain our previous business relationships.” Follow Nikkei, Japanese chemicals have been widely trusted in the display and semiconductor industry for a long time, thanks to high quality but reasonable prices, stable supply. Shoppers are often reluctant to find alternative sources of supply, as replacement can lead to more defective products and complicated production processes, rather than being replaced immediately.
However, Japan’s imposition of export restrictions has pushed them into a vital option. Chip companies, which use more corrosive gases than screens, have to speed up the replacement process. Samsung has started to use domestic goods in some production points to secure supply. One director admits that if Japanese corrosive gas is used, the economic efficiency is higher, but they have no choice.
Samsung and LG gradually diversify their supply chains, avoiding dependence on Japanese materials (photo: Business Korea)
Korean officials are fiercely determined to reduce their dependence on Japanese materials. “One day, our chemical industry will grow and we can say – ‘Thank you, Prime Minister Abe!'” – Kim Sang-jo, policy secretary of President Moon declared. The Korean government is building an extensive store of materials to help businesses shop, relying on supplies from other countries like the US.
“Japanese suppliers are losing priority” – a salesperson at a Japanese manufacturer of electronic components was told by a Korean customer.