SEOUL, Jul. 1 (Korea Bizwire) — South Korean chip and display makers are expected to embrace yet more uncertainty from Japan’s restriction of exports of key materials for their production amid diplomatic rows between the two nations, market watchers said Monday.
The Japanese government said earlier in the day that it will strengthen regulations on the export to South Korea of high-tech chemicals used in semiconductors and smartphone production starting Thursday, apparently in response to South Korea’s Supreme Court ruling on compensation for wartime forced labor.
Under the new rules, Japanese companies will have to apply for approval for each contract to export specific materials to South Korean clients, including Samsung Electronics Co., SK hynix Inc. and LG Display Co.
The new rules are expected to apply to three types of materials and chemicals, including fluorine polyimide used to make flexible organic light-emitting diode displays, as well as resist and etching gas needed in the semiconductor fabrication process.
Japan produces about 90 percent of fluorine polyimides and resist, and 70 percent of etching gas in the world.
The latest import restriction is adding another burden to Korean tech firms, which have been in an awkward situation over the U.S. ban on Huawei, a major client of memory chips.
“We are currently assessing the ratio of the chemicals in the manufacturing process and its potential impact on the stockpiles,” a company official from a major chipmaker said, asking to be unnamed.
“Japan’s export restrictions are expected to add uncertainty to our business, in the wake of the U.S. ban on Huawei amid the trade war.”
As it could take about 90 days for Japanese companies to gain approval for their exports for the materials, major chip and display producers will have to find alternative sources to maintain a stable level of stockpiles after the current contract expires, according to industry officials.
“As Japanese companies have a dominant market share in the materials, we will have to consult with the suppliers on the export process,” an official from a local display maker said.
“It is premature to mention the impact on our business because the new rule means a more complicated process, not an export ban on the materials.”
Some market watchers said Tokyo’s export restrictions could disrupt the production process of Korean chip and display makers in the short term, but it could help clear out the excessive level of inventory and stabilize prices of major products.
“Japan’s new measure could affect the production process of Korean chip and display makers in the short term, but it could benefit them in the mid and long term,” Kim Yang-jae, an analyst at KTB Investment & Securities, said.
“As memory chip and display companies are currently grappling with the supply glut, local manufacturers could clear out the stockpiles and could leverage their bargaining power over Japanese companies later.”
Last October, South Korea’s Supreme Court ruled that Nippon Steel & Sumitomo Metal Corp. should compensate four Koreans mobilized into forced labor during the 1910-45 colonial rule.
The court rejected Japanese claims that all colonial-era compensation claims were settled under a 1965 treaty that normalized diplomatic relations between the two countries.