Moscow began in late May to restrict exports of inert or “noble” gases, including neon, argon and helium to “unfriendly” countries, according to a report by Russian news agency TASS.
This is one of the last salvos of President Vladimir Putin against countries that imposed a series of sanctions on Moscow in response to its assault on Ukraine. Before the war, Russia and Ukraine together accounted for about 30% of the chip industry’s neon gas supply, according to consultancy Bain & Company.
The export limits come just as the semiconductor industry and its customers, were beginning to shake off the worst of the supply crisis. Automakers built 10 million fewer vehicles last year due to chip shortages, according to LMC Automotive, but supplies were should improve in the second half of this year.
“What we don’t need, obviously, is another drama with chip supply that could affect and possibly stall a recovery,” said Justin Cox, the firm’s head of global production. automotive advice.
Chipmakers are gearing up
Neon plays an essential role in the production of semiconductors, in a process called lithography. The gas controls the wavelength of light produced by a laser as it etches patterns on the silicon wafers that build the chip.
Before the war, Russia collected raw neon as a by-product from its steel mills and then sent it to Ukraine for purification. The two countries have been major producers of noble gases since the days of the Soviet Union, when the superpower used them to build its military and space technologies, said Jonas Sundqvist, principal technology analyst at Techcet, a technology company. market research, at CNN Business.
“Now we have a permanent loss of some purification capacity in Mariupol and Odessa,” Sundqvist said.
But semiconductor makers have reduced their reliance on the region since Russia invaded Crimea in 2014.
Peter Hanbury, Bain & Company’s manufacturing practice partner for the Americas, told CNN Business that chipmakers have stepped up their efforts in the wake of the February invasion.
The industry’s reliance on Ukraine and Russia for neon was “historically very high,” between 80% and 90%, Hanbury said. But since 2014, chipmakers have reduced that figure to less than a third.
“The industry has recognized the risk associated with [the region] and started qualifying new sources, developing new countries and specific suppliers,” he added.
So far, the war in Ukraine has not hampered chip production, Hanbury said.
“I don’t think we’ll see an impact for at least a few months…I think the impact we’ll see will probably be somewhat minimal,” he said.
However, even if the chipmakers can replace the region’s lost supply, they’ll likely end up paying a lot more for vital gases.
It’s difficult to track the price of neon and other gases because most are traded under long-term private contracts, Sundqvist said. But Techcet estimates that neon contract prices have already quintupled since the invasion earlier this year and will remain at those high levels in the near term.
“[Russia’s export limits] will definitely impact any new contract,” Sundqvist said.
“[We] are taking steps to secure additional supply for a longer period,” a company spokesperson said.
China could benefit
Countries are now rushing to boost their chipmaking capacity after two years that brutally exposed them to volatility in global supply chains.
More chip manufacturing will likely mean more demand for noble gases.
With Russia threatening to cut exports, China could be a big beneficiary. It has the “largest and newest” production capacity, according to Sundqvist.
Since 2015, the country has invested in its own semiconductor industry, including the equipment needed to separate noble gases from other industrial products. China is now a net exporter of these gases and claims to be self-sufficient, he said.
Global demand for noble gases will likely be concentrated in China, Sundqvist added, and the country “will get a good price for [its] product.”