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Japan-South Korea rift

Japan's etching gas approval preserves chip supply chain link

South Korean manufacturers relieved but still wary of fresh export curbs

Samsung Electronics has been conserving hydrogen fluoride etching gas in case of a prolonged halt in shipments, an industry source said. (Photo courtesy of Samsung Electronics)

SEOUL/TOKYO -- Japan's approval of a hydrogen fluoride shipment to South Korea has given some reassurance to worried chipmakers, but uncertainty still hangs over the industry after Tokyo's removal of Seoul from its trade whitelist.

The decision reported this week marks the first approval for hydrogen fluoride exports to South Korea since Tokyo tightened controls on semiconductor manufacturing materials in July.

"It feels like we can breathe easier," a source in South Korea's chipmaking industry said.

"We made a point of announcing the first case" of an export license being granted, Economy, Trade and Industry Minister Hiroshige Seko told reporters Friday. But he declined to comment on individual approvals, as they involve information on specific companies.

While hydrogen fluoride is used in a range of industries, the curbs are of greatest concern to semiconductor makers, which use ultrapure gas to etch silicon wafers. South Korea buys just over 40% of its hydrogen fluoride from Japan while sourcing the rest from elsewhere, including China, but it relies on Japan for about 90% of the high-purity portion of its supply.

Samsung Electronics, the world's top chipmaker, had a roughly three-month supply of hydrogen fluoride at the time the curbs were imposed, according to an industry insider familiar with its situation.

Facing the risk of shipments being delayed for some time, the company "has maintained production levels while conserving hydrogen fluoride through such steps as adjusting production processes," the source said. Samsung has also been testing etching gas from non-Japanese sources.

Other South Korean businesses have scrambled to find alternative procurement routes. Japanese materials makers have offered support to fulfill their responsibilities as suppliers. Some industry watchers say that cooperation has actually deepened despite the curbs.

Japanese trade data shows an 84% plunge in exports of hydrogen fluoride to South Korea by volume between June and July. The average price per kilogram has quadrupled to about 840 yen ($7.90), likely owing to purer and more expensive product making up a larger share.

Asked about the drop in exports, Seko said that "a temporary decline is natural and within expectations."

He reiterated that the policy change is not a ban. "We will grant approvals when [shipments] are confirmed to be private transactions," he said. "Export volumes will recover once companies that get licenses start exporting."

The ministry approved two shipments of resist, another of the three chipmaking materials subject to the enhanced controls, this month. The shipments are believed to have come from JSR and Shin-Etsu Chemical.

As for the third materials -- fluorinated polyimides, used to make organic light-emitting diode displays -- South Korea's Ministry of Trade, Industry and Energy says that applications have been submitted but no approvals have come through yet.

Meanwhile, the country is bracing for the potential impact of its removal Wednesday from Japan's whitelist of trusted trading partners. The South Korean trade ministry has said the move "has not had any specific effect at this time," but the business world remains on edge.

"There are a lot of goods that we rely on Japan for," an industry source said. "Even if we take countermeasures against [the existing controls on] the three materials, if anything else gets added on, we'll have to deal with that."

And Japanese manufacturers that have yet to have their own exports greenlighted have complained about complex procedures and the trade ministry's demands for detailed documentation, and said they still have no clear idea of when their applications might be approved.

The curbs have made South Korean businesses painfully aware of the risks of depending too much on Japan.

"We've been getting more offers from Chinese companies," said an executive at a South Korean electrical equipment maker. "If the chill between Japan and South Korea keeps dragging on, our supply chains with China may get stronger, aside from the things we can get only from Japan."

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