Hu-Chems to solidify nitrate leadership with Asia’s largest capacity

The semiconductor chip manufacturing process requires that wafers – thin slices of semiconductor on which integrated circuits are fabricated – undergo a cleaning stage with nitric acid (HNO3) to remove any unwanted substances on them.

Nitric acid cleanses the wafers' surface through a chemical process called oxidation, the  same process that causes metals to rust.

South Korea’s Hu-Chems Co. – its name derived from the abbreviation of human, chemical and science – is the dominant leader in the country’s semiconductor-grade nitric acid market with more than a 90% share.

The company has recently shared its roadmap to take an even bigger portion of the market, targeting 100%, with facility expansion planned by 2024.

Hu-Chems announced on Mar. 11 that it completed the layout design and the selection of technical partners for its latest No. 6 plant to be built by 2024 in Yeosu city, located 370 km south of Seoul.

The nitric acid market leader has invested 150 billion won ($132 million) in building the new plant with an annual production capacity of 0.4 million tons, significantly raising the company’s total capacity to 1.5 million tons – the largest in Asia and enough capacity to supply the entire domestic market.

COMPANY BRIEF

Hu-Chems is a chemical product manufacturer that Taekwang Industrial Co. acquired from Namhae Chemical Co. in 2006. Taekwang currently holds a 39.95% stake in Hu-Chems, currently led by CEO Shin Jin-yong.

Hu-Chems is considered a value company within South Korea’s chemical industry for its operating profit, which is markedly higher than those of its peers.

The average operating profit of the company over the past several years hovered around 20%, while the chemical industry average remained lower at 6.8% as of 2019.

The company also uses nitric acid to manufacture other products such as DNT (di-nitrotoluene) and MNB (mono-nitrobenzene), both of which are used as base materials to make polyurethane commonly used for the interior finishings of cars, furniture and office buildings.

The company also makes ammonium nitrate (NH4NO3) that is used mainly for explosives and its long-term contracted customers include Hanwha, Hanwha Solutions, OCI and BASF Korea.

ROSY FUTURE DESPITE WEAKNESS

Industry experts point out that the company, however, is not without its weaknesses.

The demand for its nitrate products is driven by the relatively cyclical semiconductor, auto and construction industries.

Nitric acid is a product that is highly dependent on regional demand, as its extreme flammability makes it almost impossible to be transported over long distances.

As a result, it saw a decline in operating profit from 21.3% in 2017 to 16.0% in 2020, due to the lower performance of relevant local industries.

But analysts expect a bounce-back this year with demand increase for nitric acid from the semiconductor industry.

Due to much-higher demand for semiconductor chips than in previous years, major chip manufacturers are concerned that nitric acid supply may face a similar shortage, according to Hu-Chems.

Hu-Chems remarked that such concerns around sufficient nitric acid supply are pushing its customers to sign advance contracts on the volume to be produced by the new plant planned for 2024.

CARBON TRADING AS NEW REVENUE STREAM

Another growth engine highlighted by industry experts is the drastic expansion of the carbon trading system in South Korea from this year, obligating companies to purchase three times more carbon credit than in previous years.   

Hu-Chems possesses the highest volume of carbon credit among all South Korean companies with 160 million tons.

The company explained that it could become the top player in the carbon trading segment as it was significantly reducing carbon emissions by installing reduction facilities as early as the mid-2000s.

Financial analysts project that Hu-Chems will be able to raise extra revenue of tens of billions of won just from selling its carbon credit. The company’s revenue last year was 593.5 billion won ($522 million).

Hu-Chems CEO Shin commented: “Our company will continue to lead in the areas of corporate social responsibility by continuing to strengthen our ESG management.”

Write to Kyung-Min Kang at kkm1026@hankyung.com
Daniel Cho edited this article.