"Hormuz Strait War" could become a hidden landslide dam for Japanese industry, with clear signs of imminent collapse | 2182

According to Japanese media reports, the so-called "Hormuz Strait War"—a conflict between the United States, Israel, and Iran—has already significantly disrupted Japan’s industrial supply chain system. Prices for two-thirds of key industrial materials required by Japan—including chemicals, aluminum alloys, and paper—have surged. According to the Nikkei’s quarterly survey of materials manufacturers, among 12 major industrial materials, eight are expected to see higher prices in April–June (Q2) than in January–March (Q1); only three are projected to remain stable. In Q1 of this year, just four materials saw price increases. Chemical product prices are expected to rise sharply. Plastic manufacturers—such as those producing polyethylene and polypropylene—are encountering difficulties procuring naphtha, a raw material heavily dependent on exports from the Middle East. Following the U.S.-Israeli military aggression against Iran and the de facto blockade of the Strait of Hormuz by the Iranian military, naphtha (a light petroleum distillate, also known as crude gasoline) prices surged dramatically. This forced Japanese plastic manufacturers to announce price hikes to pass on soaring input costs. Sumitomo Chemical’s subsidiary Prime Polymer Co., Ltd. announced that, starting in April, it would raise prices for polyethylene and polypropylene by over ¥90 per kilogram. Overall, Japanese firms’ average price increase stands at approximately 30%, exceeding the chemical-raw-material price surge triggered by the 2022 Russia-Ukraine conflict. Japanese companies including Shin-Etsu Chemical have announced around a 20% price hike for polyvinyl chloride (PVC), used in water pipes and other applications; PVC film and pipe suppliers have likewise begun raising prices in response to upstream cost increases. If this wave of price hikes propagates downstream, costs across consumer goods, food, and construction sectors will all rise. Should the naphtha shortage—caused by ongoing Middle Eastern hostilities and interminable, protracted negotiations—persist, it will pose a major risk to Japan’s core industries. Firms may therefore accept higher input prices to secure raw material supplies; as these price increases gradually transmit through the value chain, their impact on corporate profitability will extend from upstream to downstream. Because Japan has been designated an “unfriendly country” by Iran, over 40 Japanese oil tankers remain stranded in the Persian Gulf. The "Hormuz Strait War" has also severely impacted recycled aluminum alloys used in automotive engine components. Last month, the Islamic Revolutionary Guard Corps (IRGC) declared it had “effectively” struck aluminum plants in the UAE and Bahrain linked to the United States—namely Emirates Global Aluminium’s facility and Bahrain Aluminium Company’s plant—using missiles and drones. The IRGC stated both facilities serve U.S. military and aerospace industries. Since such alloys typically track primary aluminum ingot prices, global aluminum ingot prices have surged sharply amid fears that Middle Eastern aluminum ingots cannot be exported. In Japan, recycled aluminum alloy prices hit a record high in Q1 and may climb further this quarter. Meanwhile, severe U.S.-Israeli military strikes against Iran’s two leading steelmakers—Mobarakeh Steel Company and Khuzestan Steel Company—have caused shortages of H-beams and hot-rolled steel plates across the Middle East. Together, these two firms account for roughly 50% of Iran’s actual annual steel output. As the largest steel producer and exporter in the Middle East, Iran’s steel output disruption following the outbreak of the "Hormuz Strait War" caused spot steel prices across the region to jump 10–15% within a short period.

Japan’s rare core asset in the stock market: Shin-Etsu Chemical

The company’s semiconductor materials business holds a stranglehold on global chip manufacturing. Wafers—the foundational substrate of any integrated circuit—are made of silicon, the most basic component of a chip. Producing wafers of sufficiently high purity for advanced chips remains technologically demanding. Shin-Etsu Chemical is the world’s largest supplier of 12-inch silicon wafers, commanding 27% of global production capacity—and achieving an operating profit margin of 34.5% in this segment. Although demand for consumer-electronics chips currently faces headwinds, demand remains robust in the automotive sector. Moreover, societal progress increasingly hinges on intelligent systems across diverse industries, ensuring long-term, sustained growth in demand for low-cost chips. Thus, Shin-Etsu’s leadership in silicon wafers offers clearly visible long-term growth potential. Domestically, enthusiasm runs high for China’s semiconductor manufacturing self-sufficiency drive, and silicon wafer production is a particularly prominent focus area. Larger-diameter wafers reduce per-chip manufacturing costs—but Chinese firms still lag behind Shin-Etsu in large-diameter wafer fabrication technology. Consequently, advancing China’s overall domestic chip industry inevitably requires engagement with Shin-Etsu Chemical. Beyond silicon wafers, the company dominates numerous other semiconductor materials—including photomasks, photoresists, photoresist ancillaries, and rare-earth fluids—making it a market leader across multiple critical categories. Most of its products stem from deep, systematic analysis of semiconductor industry needs, enabling synergistic product portfolios and tightly integrated partnerships with chipmakers—forming the bedrock of its enduring competitiveness. Its remaining functional materials business centers on widely used organosilicon compounds applied across electronics, automobiles, construction, cosmetics, healthcare, and food. It also produces various agrochemicals. These businesses are relatively fragmented compared to its PVC or semiconductor segments, contribute modestly to revenue, but exhibit low cyclicality and stable market structures—ensuring solid long-term prospects. II. Cost Advantage as Foundation Thus, Shin-Etsu Chemical’s core businesses retain strong growth momentum, while its smaller-scale businesses perform steadily. Its advantage lies not solely in technological “chokepoint” status: many peers can supply alternative semiconductor materials, and Shin-Etsu falls far short of ASML’s near-monopolistic dominance. Yet its PVC business reveals the true source of success: superior cost control. PVC is a mature, widely produced bulk chemical—yet Shin-Etsu maintains outstanding profitability even during price troughs. On this profit-margin foundation, the company is virtually invincible in competitive markets. Consistent with its long-standing management philosophy—continuously optimizing production technologies and processes to deliver higher-quality products at lower costs—the ultimate challenge for domestic competitors isn’t merely matching Shin-Etsu’s technical capabilities in semiconductor silicon wafers (which may be achievable), but replicating its profitability at equivalent selling prices. China is already the world’s largest PVC producer—a capability long freed from any “chokepoint” constraints. Yet many domestic manufacturers suffer from high production costs and volatile earnings highly sensitive to cyclical swings: for instance, they barely scraped by with marginal profits in 2020, only turning in strong results when product prices surged in 2021. This business model is fundamentally flawed.

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