Russia’s invasion of Ukraine could weaken the supply lines of chip makers

Russia’s invasion of Ukraine could disrupt the global gas supply of neon gas and metal palladium, both of which are used to make semiconductors, say analysts.

Any disruption arising from the dispute will be followed by a decline in the already declining supply of chips, which is an important issue of global strategy that cuts across industries and is extremely important to Biden management.

Russia and Ukraine produce 40% to 50% of the neon semiconductor level, according to market research company Techcet CA LLC. Found mainly in metal production, neon gas is used in lasers that assist in the formation of semiconductors.

About 37% of the world’s palladium production comes from Russian mines, according to Techcet, and the metal is used in sensor chips and certain types of computer memory. A long-running war could cause delays in shipping, raise prices and force producers to look for alternative sources of supply, which is possible in South Africa, said Lita Shon-Roy, chief executive officer of San Diego-based Techcet.

Uncertainty over the neon supply chain could also send semiconductor manufacturers who want to export it, including China, said Ms. Shon-Roy.

“China will be the next destination for neon travel, and the current concern, of course, is the deep tensions between the US and China,” she said. Shon-Roy. swallowing US ”

Disruption of semiconductor supply chains will greatly affect small producers, he added.

Russian steel-producing plants produce crude neon, refined in Ukraine, according to Techcet. Although some countries, including the U.S., have the power to produce neon, increasing production may be difficult, says Stacy Rasgon, senior analyst at AllianceBernstein Holding LP of Bernstein Research. Up to 75% of the neon supply worldwide is used to make semiconductors, according to Bernstein.

Producing extra neon elsewhere might be difficult, Mr. Rasgon said, as it involves building special infrastructure within steel plants to extract it.

“It probably takes a long time to build and you may have to slow down the steel industry to re-install,” he said.

Strong neon supply chains can increase prices, but given how small the market is, it will not have a significant impact on semiconductor prices, said Mr. Rasgon. Estimates vary widely, but the size of the neon market could be a few hundred million dollars in the end, he added.

ASML Holding NV, a Dutch supplier to chip manufacturers, said the Ukrainian situation did not have a direct impact on their business.

“We use only a small amount of neon gas, and less than 20% of that amount is received by our supplier in that region,” said a company spokesman.

John Neuffer, chief executive officer of the Semester Conductor Industry Association, said in a statement that he did not believe there was a risk of immediate disruption of service delivery related to Russia and Ukraine.

But the risk increases if the dispute lasts longer, analysts say.

“The potential for placing an important part of the [neon] cleanup capacity sounds somewhat alarming,” Mr. Rasgon wrote in a Feb report. 14.

The long-term impact on the neon market can only be known if emergency stocks are depleted, said Brady Wang, co-director of semiconductors at Counterpoint Research.

“The time gap between the end of mass stocks and new industries coming online is where the risk of chip makers lies,” he said.