Ukraine war could hurt supplies of neon, palladium needed for chips

Another chip supply chain crisis could be in store due to the emerging Russia-Ukraine conflict. Russia invaded Ukraine on Thursday, firing missiles into military installations and advancing tanks and troops into several large cities throughout the country of 40 million people.

Ukraine makes more than 90% of the high-grade neon in gas-phase lasers used to make chips produced by U.S. semiconductor companies. The gas is a biproduct of Russian steel manufacturing which is purified in Ukraine, said market research company Techcet. Neon prices soared during the Russia-Ukraine conflict in 2014.

Meanwhile, Russia provides a third of the palladium metal used in sensors and memory products produced by U.S. companies. Russia is also a “crucial” source of C4F6 (hexafluorocyclobutene), which several U.S. suppliers buy and purify for advanced node logic device etching and advanced lithography processes for chip production, Techcet wrote in advance of the invasion as Russia build up troops along the border of Ukraine in recent weeks.

 It isn’t clear whether these commodities could be disrupted by the conflict, although chipmakers are following the unfolding crisis carefully.

Both potential supply shortages come atop more than a year of global chips shortages, pushing U.S. companies, especially carmakers, to scramble to build up chip reserves or set up exclusive deals with chipmakers to serve their needs.

The availability of neon and palladium was already tight, but the conflict could push up prices, which could in turn result in higher chip prices.

Techcet CEO Lita Shon-Roy said if the conflict escalates and if the U.S. imposes more sanctions on Russia, then Russia could retaliate by withholding critical materials needed for U.S. chip production. “Because the conflict may impede exports from Ukraine, neon supply would be immediately impacted,” Shon-Roy said. C4F6 and Palladium exports that come directly from Russia could also be withheld as leverage against trade sanctions.

“We hope it will not come to that; however, if the current situation escalates, U.S. chipmakers may suffer material supply interruptions,” Shon-Roy said.

Micron Technology, a big memory chipmaker, called the potential disruption of materials “concerning for the semiconductor industry,” according to a statement, adding it has diversified supply sources.

The Semiconductor Industry Association, representing nearly all U.S. semiconductor companies, said in a statement that the industry has a diverse set of suppliers or key materials and gases, "so we do not believe there are immediate supply disruption risks." 

A large supplier to chipmakers, ASML, said it has been seeking alternative sources for neon it uses in its factories, according to Reuters. ASML had 85% of its sales in Asia in 2021, a continent that produces the majority of all the world’s chips. Intel, Samsung and TSMC all make chips and are large ASML customers[MH1] .

Reuters also reported that SK Hynix, a memory chipmaker in South Korea, reported it had a good supply of chip materials, adding “there’s no need to worry.” Intel told Reuters it did not anticipate any impact.

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