Here’s how the attacks on Ukraine aggravate the chips shortage

The two leading suppliers of neon in Ukraine that produces about half the world's supply of the key ingredient for making chips have recently halted their operations.
15 March 2022

Here’s how the attacks on Ukraine aggravates the semiconductor shortage. (Photo by John MACDOUGALL / AFP)

  • Approximately 45% to 54% of the world’s semiconductor-grade neon, critical for the lasers used to make chips, comes from two Ukrainian companies, Ingas and Cryoin.
  • The stoppage has only cast a darker cloud over the possibility of worsening chips shortage as demand continues to skyrocket.
  • A report by Gartner even indicated that companies are wary of long-term ramifications if the situation persists or escalates.

Since Russia began invading Ukraine, a little-known but crucially important piece of information regarding global supply lines was brought to light: it turns out Ukraine is known to be a  leading exporter of highly purified rare gasses such as neon and krypton.

The former Soviet republic in fact hosted two leading suppliers of neon, producing about half the world’s supply of the key ingredient for making chips. Now, with both firms having shuttered their operations locally, the chips shortage is expected to only be further aggravated.

In a report, Reuters said both Ukrainian firms, Ingas and Cryoin, have shuttered their operations ever since Russian troops escalated their attacks on cities throughout the country late last week. According to Reuters calculations based on figures from the companies and market research firm Techcet,  approximately 45% to 54% of the world’s semiconductor-grade neon, critical for the lasers used to make chips, comes from Ingas and Cryoin, 

Last year alone, global neon consumption for chip production reached about 540 metric tons, based on Techcet estimates. Before Ukraine was invaded, Ingas produced 15,000 to 20,000 cubic meters of neon per month for customers in Taiwan, Korea, China, the United States and Germany — with about 75% going to the chip industry, the company’s chief commercial officer Nikolay Avdzhy, said in an email to Reuters.

As for Cryoin, the company produced roughly 10,000 to 15,000 cubic meters of neon per month. Cryoin ceased operations by February 24 ,when the invasion began in earnest. Cryoin business development director Larissa Bondarenko told Reuters that the company would not be able to fill orders for 13,000 cubic meter of neon this month unless the violence stopped. 

Research firm Gartner said in a report today that the Russian invasion of Ukraine has the potential to further worsen matters with a direct impact on the supply chain of raw materials for chip manufacturing, and a fresh wave of panic buying. Gartner’s Vice President Analyst  Gaurav Gupta believes three main scenarios could play out, and that includes raw material shortages or disruption in the supply of raw materials from Ukraine and Russia.

Gupta referred to raw materials that are critical to everything from micro and sensor chips to memory and packaging. A second scenario he thinks could take place is panic buying, or depletion of inventories from final products to n-tier materials, resulting in shortages and price hikes.

He also reckoned that sanctions or disrupted demand that results in imbalances to supply chains could also take place. If that were to happen, Gupta said it could spill over into planning and capacity management, as well as capacity investments right when semiconductor investments are in high gear.

Gupta also highlighted that while many chip manufacturers have claimed diversity in their raw materials and gas supply chains with sufficient inventory, “they are wary of long-term ramifications if the situation persists or escalates.” In short, the impact on raw material supply, market demand, and supply behaviors can dictate how the situation unfolds, and things can change very quickly in recent times.

“So the biggest risk is whether a new wave of panic buying sets in. It was one of the major reasons for the onset of the ongoing chips shortage, as it overstretched and deteriorated the supply chain further, without bringing any advantages to buyers,” Gupta highlighted.