Ukraine forced to halt production of semiconductor-grade neon, critical chip components

Ukrainian neon supply companies Ingas and Cryoin recently shut down following Russia’s continued attack on Ukraine.

According to reports, Ukraine alone produces half of the world’s neon, which are important components in the production of electronic chips. Reports further suggest that there have been threats to raise prices and also worsen the shortage of semiconductors.

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

Both companies have shut down their operations, according to company representatives contacted by Reuters, as Russian troops have stepped up attacks on towns across Ukraine, killing civilians and destroying key infrastructure.

The shutdown casts a cloud over global chip production, already in short supply after the Covid-19 pandemic spiked demand for cellphones, laptops and later cars, forcing some companies to cut production .

Although estimates vary widely as to how much neon inventory chipmakers are keeping, production could suffer if the dispute drags on, according to CFRA analyst Angelo Zino.

“If inventory runs out by April and chipmakers don’t have orders blocked in other parts of the world, that likely means additional constraints on the wider supply chain and the 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, of which about 75% was for the chip industry. , said Nikolay Avdzhy, commercial director of the company. in an email to Reuters.

The company is based in Mariupol, which was besieged by Russian forces. On Wednesday, Russian forces destroyed a maternity hospital there, which Kiev and its Western allies have 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 manager could not respond because he had no internet or phone access.

Cryoin, which produces about 10,000 to 15,000 cubic meters of neon per month and is located in Odessa, halted operations on February 24 when the invasion began to ensure the safety of employees, according to business development manager Larissa Bondarenko. .

Bondarenko said the company would not be able to fulfill orders for 13,000 cubic meters of neon in March unless the violence stopped. She said the business could survive for at least three months with the factory closed, but warned that if equipment was damaged it would further strain the company’s finances and make it more difficult to quickly restart operations.

She also said she was unsure if the company could access additional raw materials to purify neon.

Taiwan’s economy ministry, home to the world’s largest contract chipmaker TSMC, said Taiwanese companies had already made advanced preparations and had “safety stocks” of neon on hand, so didn’t see any short-term supply chain issues. The statement to Reuters echoed similar remarks from Taiwan’s central bank earlier on Friday.

But smaller chipmakers could be hit harder, according to Lita Shon-Roy, president of Techcet.

“The bigger chipmakers, like Intel, Samsung and TSMC, have greater buying power and access to inventory that can cover them for longer periods of time, two months or more,” she said. declared. “However, many other chip fabs don’t have this type of buffer,” she added, noting that rumors of companies trying to stockpile had started circulating. “This will compound the problem of supply availability.”

Ukrainian neon is a by-product of the Russian steel industry. The gas, which is also used in laser eye surgery, is also produced in China, but Chinese prices are rising steadily.

Bondarenko says prices, already under pressure after the pandemic, had soared by as much as 500% from December. According to a Chinese media report quoting Chinese commodity market information provider biiinfo.com, 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 by the end of February.

Neon prices rose 600% on the eve of Russia’s annexation of the Crimean Peninsula to Ukraine in 2014, according to the US International Trade Commission.

Other companies could start 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 in global electronics sectors.

But CFRA’s Angelo Zino noted that companies might not want to invest in this process if the supply shortage is seen as temporary.