The two main Ukrainian suppliers of neon, which produce about half of the world’s supply of the key ingredient for making chips, have stopped their operations due to the Russian attacks in their country, threatening to raise prices and aggravate the shortage of semiconductors.
Between 45% and 54% of the world’s semiconductor-grade neon, critical for lasers used to make chips, comes from two Ukrainian companies, Ingas and Cryoin, according to Reuters calculations based on figures from the companies and the market research firm Techcet.
Global consumption of neon for chip production reached some 540 metric tons last year, according to Techcet estimates.
Both companies have shut down operations, according to company representatives contacted by Reuters, as Russian troops have intensified attacks on cities across Ukraine, killing civilians and destroying infrastructure.
The shutdown casts a cloud over global chip production, already in short supply after the coronavirus pandemic coronavirus demand for mobile phones, laptops and, later, cars soared, forcing some companies to reduce production.
While estimates of how much neon stock chipmakers hold vary widely, production could take a hit if the conflict drags on, according to CFRA analyst Angelo Zino.
“If stocks run out in April and chipmakers don’t have orders booked in other regions of the world, further supply chain constraints are likely and the final product may not be able to be manufactured for many key customers.” said
Before the invasion, Ingas produced 15,000 to 20,000 cubic meters of neon a month for customers in Taiwan, Korea, China, the United States and Germany, of which about 75% went to the chip industry, Nikolay Avdzhy said. , the company’s chief commercial officer, in an email to Reuters.
The company is based in besieged Mariupol. On Wednesday, Russian forces destroyed a maternity hospital there, in what Kiev and Western allies called a war crime. Moscow said the hospital was no longer working and had been taken over by Ukrainian fighters.
Cryoin, which produced roughly 10,000 to 15,000 cubic meters of neon per month and is located in Odessa, stopped operations on February 24 when the invasion began to keep its employees safe, according to business development director Larissa Bondarenko. .
Bondarenko said the company would not be able to meet orders for 13,000 cubic meters of neon in March unless the violence stopped. He said the company could last at least three months with the plant closed, but warned that if equipment is damaged, it would put a bigger strain on finances and make it difficult to resume operations quickly.
Also, she said, she wasn’t sure the company would be able to access the raw materials to purify the neon.
Taiwan’s Ministry of Economy, home to the world’s largest contract chipmaker TSMC, said Taiwanese companies had already made advanced preparations and had “safety stocks” of neon, so it didn’t see any problems in the chain. short-term supply.
However, smaller chipmakers may be hit harder, according to Lita Shon-Roy, president of Techcet.
“The biggest chipmakers, like Intel, Samsung and TSMC, have greater purchasing power and access to inventories that can cover them for longer periods, 2 months or more,” he said. “However, many other chipmakers don’t have this kind of cushion,” he added.
Shon-Roy further noted that rumors of companies trying to stockpile have begun to circulate. “This will aggravate the supply availability problem.”
Ukrainian neon is a byproduct of Russian steelmaking. The gas, which is also used in laser eye surgery, is also produced in China, but Chinese prices are steadily rising.
Bondarenko asserts that prices, already pressured after the pandemicare up as much as 500% since December.
According to a Chinese media report, citing commodity market information provider biiinfo, the price of neon gas in China has quadrupled, from 400 yuan/cubic meter in October 2021 to more than 1,600 yuan/ cubic meter at the end of February.
Neon prices rose 600% in the run-up to Russia’s annexation of the Crimean peninsula to Ukraine in 2014, according to the US International Trade Commission.
Companies from other countries could start the neon productionbut it would take between nine months and two years to ramp up production, according to Richard Barnett, director of marketing for Supplyframe, which provides market intelligence to companies throughout the global electronics industry.
But Angelo Zino of the CFRA noted that companies might not be willing to invest in that process if supply shortages are seen as temporary.