Daily Management Review

50% Of Global Production Of Neon For Chips Halted By Ukraine: Reuters


50% Of Global Production Of Neon For Chips Halted By Ukraine: Reuters
Ukraine's two largest neon producers, which manufacture over half of the world's supply of the critical component for chip manufacturing, have ceased operations as Moscow intensifies its pressure on the nation, threatening to boost costs and exacerbate the semiconductor shortage.
According to Reuters calculations based on numbers from the firms and market research company Techcet, two Ukrainian companies, Ingas and Cryoin, produce 45 percent to 54 percent of the world's semiconductor grade neon, which is vital for the lasers needed to create chips. According to Techcet, global neon use for chip fabrication hit over 540 metric tonnes last year.
According to corporate executives reached by Reuters, both enterprises have shut down their activities as Russian soldiers have expanded their attacks on cities across Ukraine, killing civilians and damaging crucial infrastructure.
The halt puts a pall over global chip manufacturing, which was already in short supply after the coronavirus outbreak boosted demand for cell phones, computers, and eventually automobiles, causing some companies to reduce output.
According to Angelo Zino, an analyst at CFRA, while estimates on the quantity of neon supplies chipmakers maintain on hand vary greatly, output might suffer if the crisis continues.
"If stockpiles are depleted by April and chipmakers don't have orders locked up in other regions of the world, it likely means further constraints for the broader supply chain and inability to manufacture the end-product for many key customers," he said.
Ingas produced 15,000 to 20,000 cubic metres of neon every month before the invasion for clients in Taiwan, Korea, China, the United States, and Germany, with around 75 per cent going to the semiconductor sector, according to Nikolay Avdzhy, the company's chief commercial officer, in an email to Reuters.
Mariupol, which has been besieged by Russian soldiers, is the headquarters of the firm. Russian military demolished a maternity facility there on Wednesday, which Kyiv and Western allies described as a war crime. The hospital, according to Moscow, is no longer operational and has been overrun by Ukrainian fighters.
"Civilians are suffering," Avdzhy said by email last Friday, noting that the company's marketing officer could not respond because he had no internet or phone access.
When the assaults began on Feb. 24, Cryoin, which produces 10,000 to 15,000 cubic metres of neon per month and is based in Odessa, paused operations to keep staff safe, said to business development director Larissa Bondarenko.
Bondarenko stated that until the violence abates, the business would be unable to fulfil orders for 13,000 cubic metres of neon in March. She said the firm could stop the factory for at least three months, but cautioned that if equipment was destroyed, it would put a greater strain on the company's budget and make it more difficult to restore operations swiftly.
She also expressed doubts about the company's ability to obtain additional neon raw materials.
Taiwan's Economy Ministry told Reuters that Taiwanese companies had already made advanced preparations and had "safety stocks" of neon, so the supply chain would not be disrupted in the near future.
On Friday, Taiwan's central bank made similar remarks.
Ukrainian neon is a byproduct of the steel industry in Russia. The gas, which is also used in laser eye surgery, is made in China, but prices there are gradually rising.
Bondarenko claims that prices have risen by up to 500 per cent since December, despite the fact that they were already under pressure because to the epidemic.
According to a Chinese media source citing Chinese commodities market information provider biiinfo.com, the price of neon gas (99.9% content) in China has tripled since October last year, rising from 400 yuan/cubic metre to over 1,600 yuan/cubic metre in late February.
According to the US International Trade Commission, neon prices increased 600 percent in the run-up to Russia's 2014 takeover of Ukraine's Crimean peninsula.
According to Richard Barnett, chief marketing officer of Supplyframe, which offers market analytics to firms across the global electronics industries, companies overseas may start producing neon, but it would take nine months to two years to build up.
However, according to CFRA's Angelo Zino, corporations may be hesitant to engage in that procedure if a supply shortage is identified.