Ukraine halts half of world’s neon output for chips, clouding outlook

Chips were already in short supply after the pandemic drove up demand for cellphones, laptops and cars

Article content

WASHINGTON — Ukraine’s two leading suppliers of neon, which produce about half the world’s supply of the key ingredient for making chips, have halted their operations as Moscow has sharpened its attack on the country, threatening to raise prices and aggravate the semiconductor shortage.

advertisement 2

Article content

Some 45%-54% of the world’s semiconductor grade neon, critical for the lasers used to make chips, comes from two Ukrainian companies, Ingas and Cryoin, according to Reuters calculations based on figures from the companies and market research firm Techcet. Global neon consumption for chip production reached about 540 metric tons last year, Techcet estimates.

Article content

Both firms have shuttered their operations, according to company representatives contacted by Reuters, as Russian troops have escalated their attacks on cities throughout Ukraine, killing civilians and destroying key infrastructure.

The stoppage casts a cloud over the worldwide output of chips, already in short supply after the coronavirus pandemic drove up demand for cell phones, laptops and later cars, forcing some firms to scale back production.

advertisement 3

Article content

While estimates vary widely about the amount of neon stocks chipmakers keep on hand, production could take a hit if the conflict drags on, according to Angelo Zino, an analyst at CFRA.

“If stockpiles are depleted by April and chipmakers don’t have orders locked up in other regions of the world, it likely means further constraints for the broader supply chain and inability to manufacture the end-product for many key customers,” he said.

Before the invasion, Ingas produced 15,000 to 20,000 cubic meters of neon per month for customers in Taiwan, Korea, China, the United States and Germany, with about 75% going to the chip industry, Nikolay Avdzhy, the company’s chief commercial officer, said in an email to Reuters.

advertisement 4

Article content

The company is based in Mariupol, which has been under siege by Russian forces. On Wednesday, Russian forces destroyed a maternity hospital there, in what Kyiv and Western allies called a war crime. Moscow said the hospital was no longer functioning and had been occupied by Ukrainian fighters.

“Civilians are suffering,” Avdzhy said by email last Friday, noting that the company’s marketing officer could not respond because he had no internet or phone access.

Cryoin, which produced roughly 10,000 to 15,000 cubic meters of neon per month, and is located in Odessa, halted operations on Feb. 24 when the attacks began to keep employees safe, according to business development director Larissa Bondarenko.

Bondarenko said the company would be unable to fill orders for 13,000 cubic meter of neon in March unless the violence stopped. She said the company could weather at least three months with the plant closed, but warned that if equipment were damaged, that would provide a bigger drag on company finances and make it harder to restart operations quickly.

advertisement 5

Article content

She also said she was unsure the company could access additional raw materials for making neon.

Taiwan’s Economy Ministry, in a statement to Reuters, said Taiwanese firms had already made advanced preparations and had “safety stocks” of neon, so it did not see any problems in the supply chain in the near term.

Taiwan’s central bank made similar comments earlier on Friday.

Ukrainian neon is a byproduct of Russian steel manufacturing. The gas, which is also used in laser eye surgery, is produced in China as well, but Chinese prices are rising steadily.

We apologize, but this video has failed to load.

Bondarenko says prices, already under pressure after the pandemic, had climbed by up to 500% from December. According to a Chinese media report that cited Chinese commodity market information provider, the price of neon gas (99.9% content) in China has quadrupled from 400 yuan/cubic meter in October last year to more than 1,600 yuan/cubic meter in late February.

Neon prices rose 600% in the run-up to Russia’s 2014 annexation of the Crimean peninsula from Ukraine, according to the US International Trade Commission.

Companies elsewhere could initiate neon production but it would take nine months to two years to ramp up, according to Richard Barnett, chief marketing officer of Supplyframe, which provides market intelligence to companies across the global electronics sectors.

But CFRA’s Angelo Zino noted that companies may be unwilling to invest in that process if the supply crunch is seen as temporary.

advertisement 1


Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user follows comments. Visit our Community Guidelines for more information and details on how to adjust your e-mail settings.

Leave a Comment