On December 1, the Ministry of Trade, Industry, and Energy (MOTIE) of South Korea disclosed that Korea’s export value in November experienced a notable YoY increase of 7.8 %, reaching a monthly peak for this year at USD 55.8 billion. Concurrently, imports contracted by 11.6 % to USD 52.0 billion, resulting in a trade surplus of USD 3.8 billion.

Semiconductors, ending a 15-month decline, exhibited growth of 12.9 %, attributed to the escalating fixed prices of memory chips. Anticipated releases of new smartphone models and AI server products are expected to fuel demand, sustaining the positive trend in exports.

The export value of automobiles surged by 21.5 % to USD 6.5 billion, marking the 17th consecutive month of growth. This was fueled by robust demand for high value-added vehicles, such as SUVs and eco-friendly cars, particularly in the U.S. market. On the other hand, Electric Vehicles (EVs), constituting 23.8 % of the total automobile export value, experienced a remarkable 69.4 % increase, reaching USD 1.6 billion.

In terms of regional performance, exports to six out of Korea’s nine major destinations achieved growth, with notable increases in exports to the U.S., ASEAN, Japan, Latin America, India, and the EU.

Exports to China, despite a marginal decrease of 0.2 % to USD 11.4 billion, reached unprecedented highs, surpassing USD 10 billion for the fourth consecutive month. For the U.S., the exports recorded double-digit growth for the second consecutive month, reaching USD 11.0 billion, driven by strong demand for automobiles, machinery, semiconductors, wireless communication devices, home appliances, petrochemicals, and bio-related products.

In terms of Asia, ASEAN witnessed an 8.7 % increase in exports to USD 9.8 billion, achieving the second-highest November monthly exports of all time across various sectors. Exports to Japan increased by 11.5 % to USD 2.6 billion, driven by growth in petroleum products and bio health despite a decline in steel exports.

According to IJWEI’s report, Japanese companies heavily reliant on key battery and semiconductor materials manufactured in China are expanding their sources as China intensifies export controls.

On October 20th, China announced that certain graphite items, including high-purity, high-strength, and high-density synthetic graphite materials and their products, cannot be exported without permission.

This regulation officially takes effect on December 1st of this year. Graphite is crucial for manufacturing the negative electrode of lithium-ion batteries for electric vehicles. While the permit requirements do not constitute a ban, they may lead to a reduction in China’s graphite exports.

Over 80% of the natural graphite used in Japan comes from China. In case of a disruption in graphite imports, Mitsubishi Chemical Group in Japan is considering strengthening its production of electrode materials in Shandong. The company is also exploring partnerships in Australia and production in Mozambique and Norway to diversify the supply.

Representatives from Nissan Motor Company have stated that they will consider sourcing graphite and other key electric vehicle materials from alternative regions.

Panasonic’s battery subsidiary, Panasonic Energy, is collaborating with a Canadian graphite company on research for large-scale production of electrode materials. In September of this year, the Japanese Ministry of Economy, Trade, and Industry (METI) and the Canadian government signed an agreement to strengthen the battery supply chain.

According to data from the United States Geological Survey, the global graphite production reached 1.3 million tons in 2022, experiencing a 15% year-on-year growth due to the popularity of electric vehicles. China contributes to 70% of the graphite production and is a major producer of synthetic graphite. China serves as the primary low-cost exporter for both types of materials.

“The costs of procuring graphite will inevitably rise, the focus will be on how companies maintain their competitive advantage while bearing the costs.” as stated by Noboru Sato, visiting professor at Nagoya University.

Graphite is not the sole crucial mineral for China. In August of this year, China intensified export restrictions on gallium and germanium, vital rare metals used in the manufacturing of electronic components and semiconductors. Customs data indicates a significant decrease in the export of these two metals.

Japanese manufacturers are also exploring materials sources unaffected by China’s export controls. Kanto Denka Kogyo, a chemical producer, is testing lithium compounds from regions like South America to manufacture battery electrolytes. The company is also collaborating with Sumitomo Metal Mining to test technology for lithium recovery from discarded electric vehicle batteries.

At the same time, Japan is using diplomacy and foreign aid to ensure a stable supply of critical materials. Both China and Japan have confirmed the establishment of new bilateral export control dialogues. Senior trade officials from both sides will engage in regular consultations on export restriction issues.

The Japanese Ministry of Economy, Trade, and Industry is seeking JPY 260 billion (approximately USD 1.74 billion) in the supplementary budget proposal for this fiscal year to support Japan’s battery manufacturing. Some of the funds may be allocated for investing in companies producing synthetic graphite in Japan.

Last year, Japan’s additional budget provided approximately JPY 200 billion to support the extraction, refining, and processing of critical minerals. Companies investing overseas in the production of rare metals will receive subsidies of up to half.

Companies outside Japan are also taking action to mitigate the impact of Chinese supply restrictions. According to Business Korea’s report, South Korea’s company Posco Future M, which produces battery materials, has preemptively planned to manufacture synthetic graphite using coal tar, a byproduct that can be sourced domestically in Korea.

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• [News] China Implements Export Restrictions on Graphite, Impacting Battery and Electric Vehicle Industries
• [News] China’s Export Control Measures and Their Impact on Electric Vehicle Battery Production

(Photo credit: Pixabay)

China is actively investing in chips with a mature process of 20nm and above. According to Chosun Ilbo, some insiders signal a potential shift of over 50% of global mature-node chips production to China within the next 2 to 3 years. As semiconductors focusing on mature process account for 75% of overall chip demand, China’s growing influence in this sector raises significant security concerns.

During the APEC SME Technology Conference and Fair in Qingdao on the 9th of this month, Wei Li, former Vice President of SMIC, emphasized the necessity for China to prioritize the localization of semiconductors with a 20nm process and above. This category includes semiconductors focusing on mature process, where Li acknowledged China’s technology lags behind international counterparts by more than 5 years.

Despite China’s efforts for independent development, the semiconductor industry faces comprehensive restrictions from the United States, heavily relying on imports for materials, equipment, and design software, with only about 10% being domestically produced. China, holding over 1/3 of the global chip market, struggles with a self-sufficiency rate below 15%, hindering its industrial progress, especially with foreign countries imposing export controls on advanced process and equipment.

According to South Korean media reports, concerns have arisen within the industry about the potential impact on the global semiconductor supply chain as China expands its mature processes. Despite the recent surge in demand for advanced chips like AI chips and servers, semiconductors focusing on mature process still constitute 75% of overall demand. These chips are crucial not only in autonomous vehicles, automobiles, and home appliances but also in military applications. If China monopolizes this market, it could lead to a severe security crisis.

China is rapidly increasing its market share in the mature-node chips sector, with the government offering up to a 10-year corporate tax exemption for new domestic semiconductor plants. Last year, SMIC invested USD 8.9 billion in Shanghai to build a 28nm plant.

Data from TrendForce indicates that China plans to construct 32 semiconductor plants by 2024, surpassing Taiwan’s 19 and the United States’ 12.

China’s Wafer Fabs Hits 44 with Future Expansion 32, Mainly Targeting on The Mature Process

China’s Expansion into the mature process market poses big challenges for Korean enterprises. Chinese companies are gaining ground in various sectors, including the image sensor market, encompassing DDI semiconductors used in OLED panels. Beyond manufacturing capabilities, China has achieved noteworthy levels of design expertise in semiconductor technologies.

On the other hand, in previous press release, TrendForce predicted China’s mature process capacity to grow from 29% this year to 33% by 2027. Leading the charge are giants like SMIC, Hua Hong Group, and Nexchip, while Taiwan’s share is estimated to consolidate from 49% down to 42%.

TSMC, UMC, and Samsung are the frontrunners in this technology currently. Yet, Chinese players like SMIC and Nexchip are hot on their heels, swiftly closing the gap. SMIC’s 28HV and Nexchip’s 40HV are gearing up for mass production in 4Q23 and 1H24, respectively—narrowing their technological gap with other foundries.

China’s Share in Mature Process Capacity Predicted to Hit 29% in 2023, Climbing to 33% by 2027, Says TrendForce

As China enhances its influence over mature-node chips, both the U.S. and the EU are contemplating countermeasures. Despite months of discussions, there are still no concrete results regarding these potential measures.
(Image: SMIC)

With 32 mature process wafer fabs set to be completed in China by the end of next year, Taiwanese wafer foundries are gearing up early in response to the “red alert.”

Faced with the pricing war, semiconductor insiders reveal that mature process foundries in Taiwan are anticipating a roughly 10% reduction in prices in the first quarter. The aim is to seize orders ahead of the competition and maintain high capacity utilization rates.

In contrast to traditional sales discounts, major semiconductor foundries like TSMC, UMC, and PSMC have recently introduced a “diversified” pricing strategy for IC design, including:

1. Volume Discounts: Significant price reductions are offered for orders exceeding ten thousand units, with pricing flexibility increasing as the order quantity grows.
2. Volume Tied Pricing: Maintaining a certain order volume, pricing has a degree of flexibility based on market conditions.
3. Deferred Wafer Delivery: Allowing the extension of the original wafer delivery timeline by one year or even longer, providing IC design firms with flexibility and reduced pressure when placing orders.
4. Dynamic Pricing: Rapid negotiations for urgent orders, reducing the risk of volume pressure for IC designers, albeit with relatively limited price flexibility.
5. Wafer Bank: Transforming wafers into semi-finished products stored in foundries, facilitating on-demand packaging and delivery when needed.

These initiatives are strategically positioned to capitalize on the anticipated recovery in consumer electronics demand next year.

Insiders reveal that due to the sluggish market conditions in the first quarter and the impact of an upcoming extended holiday, demand for the next quarter may not just be “cool” but could freeze.

Industry experts characterize this downturn as an “L-shaped bottom,” and if orders are taken by Chinese foundries before the recovery, Taiwanese foundries will lose out on the subsequent rebound. Consequently, the three major mature process wafer foundries in Taiwan are compelled to lower prices in advance, with an estimated price reduction of around 10% for the next quarter. However, the foundries refrain from commenting on pricing.

Historically, major domestic mature process fabs maintained stable prices but offered discounts by shipping more wafers than ordered. In an effort to boost high capacity utilization and secure orders early, these fabs will no longer stick to stable pricing in the first quarter of next year.

Instead, they have adopted a direct price reduction of 10% for orders exceeding 10,000 wafers. IC design companies estimate that as benchmark fabs initiate price reductions, other industry players will inevitably follow suit.

While the extent of price reduction varies depending on products and processes, an average price reduction of 10-20% for wafer foundry services in the first quarter of next year is anticipated.

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• TrendForce Foresees China’s Mature Wafer Processes to Expand to 33% by 2027, Japan Secures Advanced Processes

(Photo credit: TSMC)

In recent years, the dynamics of the memory market have undergone significant changes, with South Korean memory giants Samsung and SK Hynix facing intense competition from Chinese firms. They are experiencing heightened competitive pressures, and the technological gap is steadily narrowing.

As per reports from South Korean media outlet Business Korea, insiders in the market have disclosed that with China increasing its support for the memory industry, after several years of development, the technological gap in NAND Flash with leading global enterprises has now narrowed to approximately two years. However, in the case of DRAM, the original technological gap of about five years is still maintained.

The report indicates that the primary reason for the shortened gap is that the threshold for NAND Flash technology is relatively lower, allowing for a faster catch-up speed, and this acceleration is continuously progressing, thereby further reducing the technological disparity.

China’s largest memory semiconductor company, YMTC (Yangtze Memory Technologies Co.), officially unveiled its fourth-generation 3D TLC NAND Flash memory, named X3-9070, based on the Xtacking 3.0 architecture, at the 2022 Flash Memory Summit (FMS).

YMTC has also taken the lead over Samsung and SK Hynix by achieving production of NAND Flash memory with a higher number of layers.

It is understood that in the year 2022 alone, investments from the Chinese government and state-owned investment funds amounted to approximately CNY 50 billion. The continuous and substantial funding is aimed at supporting development efforts, encompassing both technological catch-up and faster market penetration.

The report emphasizes that as semiconductor circuit miniaturization approaches its limits, China may seize another opportunity to narrow the technological gap, particularly in advanced packaging techniques.

China, being the world’s second-largest packaging technology market, boasts a more comprehensive ecosystem. Companies like JCET, Tongfu Microelectronics Co., and HT-Tech have all secured positions in the top ten semiconductor packaging enterprises globally, while no Korean companies made the list.

TrendForce pointed out that there is indeed a technological difference of about two years between South Korean memory giants and Chinese firms. YMTC has the research and development capabilities but is primarily hindered by the lack of key equipment for mass production. The subsequent developments depend on whether China can acquire crucial semiconductor equipment. If successful, YMTC may have the opportunity to transition to higher levels, such as 300 layers, and proceed to mass production.

(Photo credit: Samsung)