Rising trade tensions between
Japan and South Korea threaten to disrupt the lithium cobalt
battery market in East Asia in a rapidly developing sideshow to
the United States-China face-off.
By removing each other from
import white lists, the Japan and South Korea threaten supply
chains that are key for two of the world’s largest
In July, Japan suspended the
export of three classes of chemicals to South Korea.
Japan is by far the largest
producer of these chemicals: fluorinated
polyimides, photoresists and hydrogen fluoride, and they are
crucial in the production of semiconductors and other
components used in South Korea’s tech sector.
The dispute partly has its
origins in the Japanese occupation of Korea before and during
the second world war.
In 2018, a South Korean court
ruled that a number of Japanese companies owed compensation to
individual Koreans forced into labor during the war.
This is contested by the
Japanese government, which argues that the issue was resolved
when the two companies normalized relations in 1965.
Other issues increasing
tensions are a dispute over ownership of the
Dokdo/Takeshima islands, as well as South Korea’s
support for easing sanctions on North Korea, which Japan
The trade dispute kicked into high gear on
August 2 when Japan said it would remove South Korea from its
white list of favored economic partners.
South Korea retaliated on the same day by
removing Japan from its own list.
This means that goods shipped from one
country to the other will now face additional screening and red
The move poses a threat to automotive
"Our main cause for concern is the
US/China trade war as that is seen to be undermining global
growth significantly. Other bilateral trade disputes, such as
the one brewing between Japan and South Korea, are not going to
help matters," Fastmarkets’ head of battery raw
materials research William Adams said.
South Korea does supply lithium-ion
battery products to Japan, so there could be an impact there if
the trade dispute escalates, but so far there have been no
reports of any disruption, according to Fastmarkets
"The countries getting involved with the
trade disputes should we aware they are going to send a strong
message to potential overseas customers that they would be
better off keeping their supply chains as domestic as possible
and failing that as short as possible," Adams added.
"The emerging European EV industry is
already concerned about relying on lithium-ion battery supply
from Asia; these disputes will be making them more
Data from a South Korean industry body
released on Monday August 5 showed slumping sales of Japanese
car brands in South Korea in July, reflecting the effect of
boycotts even before the import restrictions kicked in.
Both South Korea and Japan boast major
battery and automotive industries, and supply chains for
electric vehicles cross between the two countries.
"We are trying to understand the effects
of this policy," one major Japanese manufacturer said. "This
could affect trade in the future, but not sure about the
Minor metals markets shrug
Japan is also a major exporter
of some key minor metals, including indium and
gallium. But market sources played down the
"We do not think the escalation
of trade tensions between South Korea and Japan will affect our
procurement for minor metals including indium," a minor metals
market source from South Korea said. "We can easily find
suppliers in other countries, and Japan knows this
The market source pointed out
at the same time that its third-quarter procurement for indium
from Japan increased to more than 30% from less than 10% in the
first two quarters, because of Chinese prices being higher
during the period.
A Chinese source also said
effects had yet to manifest.
"I do not deny the fact that
there might be some impact on the minor metals market, but it
would be relatively limited because as far as I am concerned
the trades for minor metals such as indium between both
countries are mainly bonded by long-term contracts," a
China-based market source said.
"The domestic price will be
unfazed by trade spats between South Korea and Japan because
the concerns over more auctions for indium stocks held in Fanya
are dominating the market now," the source added.
By William Clarke, Martim
Facada and Amy Lv