LCY Chemical, Solvay, Chang Chun Group, KPPC Advanced Chemicals and Topco Scientific are among the material chemical companies that have announced plans to build factories in Arizona, following investments in the state by the world's two leading chipmakers, TSMC and Intel.
The factories of these companies are considered important “pieces” in the complete chip supply chain. However, Nikkei Asia said that most of the plans have been paused or significantly reduced in scale.
In some cases, the delay is only temporary, while some projects have fallen into a state of uncertainty about when they will be reactivated.
Capital team
Suppliers cited rising costs of construction materials and labor as well as labor shortages as the main reasons for the decision. The massive influx of investment into many sectors at the same time, including chips and automobiles, has put significant pressure on the construction industry. In addition, the slow progress of leading semiconductor companies such as TSMC and Intel has also caused them to reconsider.
Vincent Liu, CEO of LCY Chemical, said the company will slow down the pace of construction of its Arizona plant due to soaring costs. For now, the company will ship chemicals to the United States by sea instead of rushing to build a factory.
“With the chemical industry, it's important to get to a large enough scale to make it economically viable,” Liu said.
Meanwhile, Solvay (Belgium) - one of the world's leading suppliers of high-purity hydrogen peroxide for the chip industry said that it has stopped its project to build a manufacturing plant due to concerns about costs, as well as longer-than-expected waiting times for Intel and TSMC.
Chang Chun Group, another hydrogen peroxide producer, opted to scale back its plant construction after costs turned out to be “several times” higher than expected.
behind schedule
However, analysts say the fact that many suppliers are delaying projects shows that the problem does not lie with one or two individual companies, but is more structural.
“The important thing is that local demand does not require that much supply,” said the Topco CEO. “Therefore, the company is in no hurry to spend resources. Building a factory requires investment in building more roads as well as electricity and water networks.”
The delay “reflects the complexity of balancing market supply and demand with current investment incentives in the US,” a Solvay representative said.
Lita Shon-Roy, CEO of Technet, a chip materials research and consulting firm, said many chemical and materials suppliers are worried about expanding too quickly when they don’t need to. Semiconductor companies are waiting for the US government to release the CHIPS Act stimulus package.
“There are also difficulties due to complex environmental and technical regulations for the chemicals sector,” said Peter Hanbury, partner at consulting firm Bain.
These suppliers have narrower profit margins than leading semiconductor companies, making them more sensitive to rising costs, the expert said. Meanwhile, chemical plants take less time to build than chip factories, so they can move more slowly when customers are ready.
Nikkei Asia sources said TSMC has postponed its mass production schedule from 2024 to 2025. Meanwhile, Intel's plan is also significantly behind. According to the US Department of Commerce, the government can only consider supporting chemical companies after the subsidy for semiconductor businesses is decided.
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