South Korea considers controls on exports of DRAM to Japan

South Korea may control the export of DRAM chips to Japan in retaliation against Tokyo's own export curbs, a director of the presidential Blue House told a local radio station.

Kim Hyun-chong, deputy director of the National Security Office, said that Seoul could use the constraint as a weapon against Tokyo, citing South Korea's control of more than 70% of the global market for DRAM chips.

Kim was a trade minister before transferring to the Blue House in February.

"Japan also relies on us for many parts. For example, we have 72.4% of market share for DRAM," said Kim in a TBS radio program. "If the supply of DRAM is halted for two months, the world will have problems producing 230 million smartphones. So we may use our dominance as an option."

Kim's comments reflect Seoul's increasingly hard-line stance amid the escalating diplomatic tiff, which has spilled into the trade sphere. As recently as Monday, observers had thought the trade ministry would exempt DRAM from its list of export controls.

South Korea is home to the world's two largest DRAM chip makers, Samsung Electronics and SK Hynix. Samsung held 42.7% of market share in the first quarter, followed by SK Hynix with 29.9%, according to market research company Statista. Micron Group of the U.S. was third with 23%.

The deputy director's comments came after the Ministry of Trade, Industry and Energy decided on Monday to downgrade Japan to A-2 in its export control system next month. This means that South Korean companies have to obtain special governmental approval before exporting more than 1,700 strategic materials and products to Japan.

Analysts say Japanese companies will try to increase stocks of DRAM chips before they are subject to the tougher regulations.

"Companies will stock up on DRAM to hedge against uncertainty, which will help boost the global DRAM market," said Lee Jae-yoon, an analyst at Yuanta Securities. "Many Japanese companies import DRAM chips from South Korea for smartphones, PCs and servers."

Lee said that Japanese companies will likely try to source DRAM from Micron, which will lead to rising DRAM prices.