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Recent events threaten to increase the shortage of microcircuits – a shortage of neon is expected

Recent developments in Ukraine could be an additional negative factor for global chip production, which has already been hit hard by the pandemic. Analysts interviewed by the Financial Times recalled that Ukraine accounts for about 50% of the world’s supplies of neon, which is indispensable in the production of microcircuits.

Image Source: analogicus /
Image Source: analogicus /

Many of the world’s manufacturing industries have already experienced the full effects of semiconductor shortages, supply delays and rising material costs. In particular, many representatives of the automotive industry have repeatedly been forced to suspend production. Analysts and industry participants, including the American Applied Materials and Intel, say that the difficulties will last until at least 2023. In the next 4 years, demand for raw materials is expected to grow by a third – many contractors, led by TSMC, plan to increase production. However, noble gases, necessary for the production of microelectronics, may become another problematic point.

After the Ukrainian events of 2014, neon prices jumped by 600%. Producers now say they can use the reserves, but the active search for suppliers outside of Eastern Europe is only exacerbating the shortage and driving up prices not only for neon, but also for other industrial gases, including krypton and xenon. The share of Ukraine in the world supply of krypton is 40%, and, according to Tsuneo Date, head of the Japanese gas supplier Daito Medical Gas, by the end of January, the price of krypton rose from 200-300 yen ($1.73-$2.59) up to 1,000 yen ($8.64) per liter – even before the start of known events. Now the situation has worsened, and the Japanese company is already forced to cancel the orders of some customers.

Global suppliers drew conclusions from the events of 2014 by increasing stocks and diversifying sources, which somewhat eased the tension on the global market. In 2016, multinational Linde invested $250 million in a Texas facility, but the crisis has deepened by now. Gas Review President Yoshiki Koizumi noted that neon, krypton and xenon supplies are declining significantly, and chipmakers and trading companies are increasing orders, realizing that in the future they will not be able to get as much as they need. Analysts at Deutsche Bank said inventories typically last 3-4 weeks.

Image source: akitada31 /

Kim Young-woo, a technical analyst at Korea’s SK Securities, says that major players like Samsung and SK hynix are able to find alternatives to some gases, but neon and krypton could be in short supply. Neon-containing gas mixtures are used in laser systems used in the production of semiconductors. It will be extremely difficult to refuse Ukrainian supplies, since neon should be purified to a level of 99.99%, and this complex production process can be provided by a few companies around the world – and one of them is located in Odessa.

The Dutch ASML, which produces equipment for the production of chips, has already stated that it is looking for alternatives to Ukrainian supplies. Japan’s Renesas and Rohm said they have either found suppliers in other markets like China or have stockpiled enough neon. Samsung and SK hynix have production in China, so this crisis will not affect them, and the impact of Ukrainian events in the short term will be minimal for them.

But TrendForce analysts are pessimistic: in their opinion, even if alternative sources appear, it will be necessary to ensure certification, which will take from several months to six months, which will cause another shortage, which will again have a negative impact on the auto industry.

source: Financial Times

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