Gas Shortage Triggering Next Global Supply Chain Crisis

It marks another avenue in which Putin’s war is upsetting global commodity markets, as European and American leaders grapple with how to replace Russian oil and natural gas supplies.

“Neon is not a significant component of manufacturing cost [semiconductors]says Ralph Butler of Techcet, a semiconductor consulting firm in California.

“But it’s an extremely important part of the process. Without supply, you will see less of these products being produced. About 540 tons of neon gas was used in chipmaking last year, Techcet estimates.

Ukraine’s dominance in the neon gas supply chain is through Ukrainian steel mills, which purify oxygen for steelmaking and sell remaining industrial gases, including neon, for purification and resale.

In 2014, Russia’s annexation of Crimea increased the price of neon sixfold, from $1,000 per liter to $6,000, according to reports at the time. Some customers have started trying to diversify their supplies, with producers in China and the United States taking market share.

Analysts believe the latest attack also pushed up prices, which had already been pushed higher by the pandemic.

Many chipmakers such as Taiwan’s TSMC, the world’s largest, are thought to have stockpiles of neon to secure supplies, but smaller companies may have been less able to protect themselves.

Analysts at investment firm CFRA have estimated the industry has up to two months worth of neon stocks. There are, however, concerns about what will happen as the conflict drags on.

“Our channel checks suggest immediate risks are low thanks to semiconductor makers holding ample gas inventory, but visibility is poor,” Demian Flowers, automotive financial analyst at S&P Global Mobility, said in a recent note. .

Producing neon gas, especially at the high purity needed for microchips, is a difficult and expensive process, which means replacing Ukrainian supplies is not straightforward and could take up to two years to ramp up. , according to experts.

Switching vendors can also be costly and difficult for chipmakers, given the highly sensitive product specifications required.

“Switching vendors requires significant evaluation time from chipmakers with associated costs, and it can take six to nine months, typically, to make these types of changes,” Butler says, although he adds: “We are not in normal times, so there may be ways to speed up this process.

While the German Electro and Digital Industry Association, which represents semiconductor manufacturers, said it had no indication of a neon shortage yet, manufacturers are prepared for further potential difficulties as that customers begin to feel the effects of the war.

“There are semiconductor manufacturers who fear the side effect [of the war on Ukraine] on their customers,” says Martin Pioch, Senior Director of European Affairs.

“During Covid, one of the issues was that the downstream industry stopped production, then the chipmakers moved to another type of product, and when the downstream industry started up again, there was a shortage. [of chips].”

Mercedes-Benz, General Motors and Ford are among automakers that have been hit by global microchip shortages over the past year.

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