While South Korean memory giants Samsung Electronics and SK hynix saw their sales in China double in the first half of this year, the country as a whole seems to heavily rely on China for essential semiconductor raw materials as well, with silicon, germanium, gallium and indium seeing the largest increase, according to a report by the Korea Eximbank Overseas Economic Research Institute on September 24 cited by Business Korea.

Despite the efforts to diversify supply chains, the report highlights the growing reliance of South Korea on China for critical semiconductor raw materials. For instance, the importance of silicon, a vital component in silicon wafer production, has been increasing, as the country’s reliance on China for the ingredient rose from 68.8% to 75.4% in 2022, the report states.

Meanwhile, South Korea’s reliance on rare earths, which are used in semiconductor abrasives, is also said to be on the rise, the report notes. The reliance on tungsten, crucial for semiconductor metal wiring, experienced a slight increase as well.

It is worth noting that since August of last year, the Chinese government has imposed export restrictions on critical minerals, including germanium and gallium, as a counteract to U.S. export sanctions. According to the U.S. Geological Survey, China produces 98% of the world’s gallium and 60% of germanium.

Even before the sanction, there is a significant rise in South Korea’s dependence on China for these critical minerals. Business Korea notes that the country’s dependence on germanium, which is frequently used in next-gen compound semiconductors, surged by 17.4 percentage points to 74.3% in 2022.

In addition, reliance on gallium and indium increased by 20.5 percentage points to 46.7%, according to the report.

Under the scenario of China’s export restrictions on key minerals, which were implemented in August and December of last year, the local production by major Chinese companies has not significantly declined, the report notes.

For instance, Samsung’ NAND flash facility in Xi’an, China, has increased its share for the company’s total NAND capacity during the past few years, from 29% in 2021 to 37% in 2023, with expectations to reach 40% this year, according to the report.

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(Photo credit: Samsung)

China’s export controls on crucial semiconductor materials are reportedly hitting the supply chain, with concerns rising over potential shortages of advanced chips and military optical hardware.

According to the U.S. Geological Survey, China produces 98% of the world’s gallium and 60% of its germanium. However, since July of last year, the Chinese government has imposed export restrictions on these minerals, causing their prices in Europe to nearly double over the past year. China claims these measures are to protect national security and interests in response to U.S. export sanctions.

As per a report from the Financial Times, an industry source who works at a large consumer of semiconductor materials has revealed that the situation with China is extremely critical, with significant reliance on China’s supplies.

Affected companies have also disclosed that while there is still some bulk shipment of Chinese gallium, the overall export volume has dropped by about half since the controls were implemented. If China continues to reduce gallium exports as it did in the first half of the year, reserves could be depleted, leading to shortages.

Per the same report from Financial Times, Jan Giese, Senior Manager at Frankfurt-based trading firm Tradium, noted that the gallium and germanium his company obtained through China’s new export licensing program account for only a small portion of past purchases. These export controls are adding additional pressure on markets outside China, making an already challenging market even more complex.

Gallium and germanium are crucial for semiconductor applications, military, and communications equipment. They are essential materials for producing advanced microprocessors, optical fiber products, and night vision goggles, so ongoing export restrictions by the Chinese government could hinder the production of such items.

Meanwhile, the Chinese government has announced new export restrictions on antimony this month. Antimony is used in armor-piercing ammunition, night vision goggles, and precision optical components. This follows previous export controls on graphite and rare earth extraction and separation technologies.

Under the regulations, each shipment requires approval, which takes 30 to 80 days and involves uncertainty, making long-term supply contracts impractical. Applications must specify the buyer and intended use.

The report cites sources in the semiconductor materials sector, noting that China is using these restrictions to catch up with the U.S. and other semiconductor technology leaders. Given the current global situation and U.S.-China relations, there seems to be no motivation for China to ease export controls.

Addressing the matter, the China’s foreign ministry declined to comment.

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(Photo credit: iStock)