Ukraine war and neon gas supply disruption for chip manufacturing


Semiconductor supply chain shattered during the covid pandemic seems to have another crisis at its doorstep: neon supply hampered by the war in Ukraine. Neon gas is a key ingredient in chip manufacturing, and two Ukrainian companies, Ingas and Cryoin, supply from 45% to 54% of the world’s semiconductor-grade neon.

In a recent report from Reuters, market research firm Techcet estimated the global neon consumption for chip production to have reached nearly 540 metric tons in 2021. Now, both Ingas and Cryoin have shuttered their operations, and that’s threatening to raise prices and aggravate the semiconductor shortage all over again.

Here, it’s worth mentioning that large chip producers like Intel, Samsung and TSMC have a vast amount of neon stocks at hand. Techcet president Lita Shon-Roy noted that these outfits have greater buying power and access to inventories that may cover them for longer periods of time, two months or more. “However, many other semiconductor fabs don’t have this kind of buffer.”

That’s why chip production could take a hit if the conflict drags on, says Angelo Zino, an analyst at CFRA. The semiconductor-grade neon is critical for the lasers used to manufacture chips.

Ingas, based in Mariupol, Ukraine, has been producing 15,000 to 20,000 cubic meters of neon per month for customers in China, Germany, Korea, Taiwan, and the United States before the invasion. Nearly 75% of its output was going to the semiconductor industry.

Cryoin, located in Odessa, Ukraine, has been producing roughly 10,000 to 15,000 cubic meters of neon per month before the war began. Larissa Bondarenko, Cryoin’s business development director, said that the company could weather at least three months with the plant closed.

That clearly shows the repercussions if the war drags on in Ukraine. There is a hope of a quick settlement of the conflict in Ukraine, and that’s why the neon supply crunch is seen as temporary and chipmakers are so far unwilling to invest in alternative neon production sources.

However, if the war in Ukraine escalates, so will the risk of another semiconductor supply chain hiccup amid the disruption in neon gas stocks. Remember that neon prices rose 600% in the run-up to Russia’s 2014 annexation of the Crimean Peninsula from Ukraine.

A quick and peaceful resolution of the conflict in Ukraine is also in the best interest of the chip industry.