Conflict-induced neon gas shortage could hit semiconductor industry

The repercussions of Russia’s invasion of Ukraine continue to widen and deepen. The prices of some of the world’s important raw materials such as oil, natural gas, fertilizers, nickel and copper have soared as future production levels of these materials (which the West will always accept from Russia ) have been questioned. Additionally, and somewhat surprisingly, the conflict may significantly affect an industry – semiconductor manufacturing – that is not usually associated with either Russia or Ukraine.

Ukraine produces about half of the world’s neon gas, and most of that gas is shipped to the United States for use in its semiconductor industry. Neon produced by Ukraine is initially a by-product of steel production in Russia and is refined to purity levels of 99.99% at facilities in Ukraine. Much of Ukraine’s neon production is centered around the port city of Odessa, where the fighting is expected to start anytime soon. To state the obvious, Ukrainian companies currently face huge obstacles when trying to both produce neon gas and export it from these facilities.

In the chip industry, neon gas powers lasers that etch patterns into individual chips. Etching removes layers from the surface of a wafer during manufacture; each wafer usually goes through many etching steps.

Representation of laser engraving of chips.

Some industry analysts claim that no other gas can effectively replace neon in this role. Even more worrying: An analyst at TechCet, an electronics materials consultancy that advises major chipmakers like Intel, says US-based semiconductor makers source 80-90% of their imports sign in Ukraine.

The implication of all of this is that the reduced availability of neon from Ukraine could prove to limit production levels for the chip industry. Moreover, this new hurdle would come at a time when the industry is struggling to meet the huge post-pandemic global demand for semiconductors, which are the brains of devices from automobiles to smartphones. In turn, high-value products, like highly anticipated new electric vehicle models, could face further production delays.

Obviously, the chip industry will eventually be able to source neon gas from other places, but this change cannot be made immediately. According to some information, the certification of new installations can take several months. The head of Daito Medical Gas, a pressurized gas distributor in Japan, sums up the current situation perfectly in a quote to a Financial Times reporter: “We are in big trouble. We have no noble gases to sell.

Some chipmakers, like memory chip giants Samsung and SK Hynix, either have neon gas factories located in China or have neon gas supply contracts with Chinese factories and appear to be immune. of any shortage of neon gas.

Interestingly, a similar neon supply problem occurred in 2014 when Russia invaded Crimea. Then neon prices shot up 600% or more, but prices returned to original price levels fairly quickly. However, the 2014 Crimean conflict was both orders of magnitude less serious than the Russian-Ukrainian war and was accompanied by far less global outrage.

Today, neon prices have at least tripled, but that gain is probably not an accurate indicator of the extent of the problem. Most neon gas transactions are done through long-term contracts.

Information for this briefing was found via Edgar and the companies mentioned. The author has no security or affiliation related to this organization. Opinions expressed herein are solely those of the author. Not a buy or sell recommendation. Always do additional research and consult a professional before purchasing a title. The author holds no license.

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