Since the experience of Donald Trump’s first term suggested that nothing good should be expected from him in the field of US-China trade relations, Japanese and South Korean authorities are thinking about reducing their dependence on Chinese raw materials used in the production of electronics.
Image source: Tokyo Electron
The activities of companies in Japan and South Korea may be negatively affected by both direct American sanctions against China and retaliatory actions by the Chinese side. As TrendForce explains with reference to Nikkei, in Japan and South Korea this problem has received attention at the highest government level. In particular, Japan expects not only to start producing advanced 2nm chips on its territory from 2027, but also to triple the volume of semiconductor products in monetary terms to $113 billion by 2030.
To achieve this goal, Japanese companies will have to build a more independent supply chain for materials and chemicals. The Japanese authorities are ready to allocate $3.42 billion in subsidies for these needs, part of these funds will be used to develop “green energy”. The Japanese company Sojitz is going to build a plant on the island of Kyushu to produce dehydrated hydrogen fluoride, which is used in processing silicon wafers to produce chips. In the future, such an enterprise will be able to cover the needs of the Japanese semiconductor industry for this substance by 40%, reducing dependence on imports from China.
In South Korea, the situation with its own mineral base is no better, and it is forced to purchase up to 95% of fossil raw materials abroad. The country’s authorities have selected 10 key minerals for which the degree of dependence on a single supplier should be reduced from the current 80 to 50% by 2030. This can be achieved through more active diversification of supply channels. Lithium and nickel are included because they are needed for battery production, as are cobalt and copper. Negotiations on their supplies are ongoing with Canada, Australia, Chile and a number of African countries.
The importance of such diversification becomes greater given the actions of the Chinese authorities, who have promised to strengthen controls over the export of tungsten, graphite and aluminum. Over the years of its industrial expansion, China has become a major supplier of certain types of raw materials. Even if some minerals are not mined in the country, they are processed there, and at a relatively low cost, which is still unattainable for many competitors. In particular, although Australia supplies lithium in large quantities, Japan and South Korea continue to rely heavily on China for these types of raw materials. While Chinese suppliers keep prices low, investors outside the country are in no hurry to invest in alternative supply channels. Japan, in addition, is 99% dependent on China for supplies of highly purified magnesium. The authorities of Japan and South Korea will have to help local suppliers with subsidies, and buyers of raw materials will have to put up with higher prices compared to Chinese products.