Chip shortage fears grow as half of neon supply is hit by war

28 March 2022

Fears of a neon shortage have grown after two key suppliers in Ukraine shuttered operations due to the Russian invasion.

Ingas and Cryoin are responsible for 45-54% of the world’s semiconductor grade neon but halted operations in mid March, according to company representatives contacted by Reuters. More than 90% of neon used in the US chip industry is sourced from Ukraine.

Supply Management has reached out to the two companies for comment.

The Atlantic Council, a US think tank, said: “The negative impact of neon shortages on an already ailing semiconductor industry cannot be underestimated. Its ripple effect would reach far across the global economy.”

Neon is a noble gas needed for the lasers that cut patterns into semiconductor chips, which are used for cars as well as various consumer electronics. Neon is also necessary for production of other computer components such as flash memory.

The Society of Motor Manufacturers and Traders said UK car production fell by 41.3% in February, with 61,657 units made, “primarily due to the persistent global shortage of semiconductors causing some factories to pause production”.

Mike Hawes, SMMT chief executive, said: “The automotive industry is undergoing its most radical transformation in more than a hundred years, but manufacturers are simultaneously facing the most extreme operating conditions as global economic headwinds drive up costs and constrain supply.

“The sector entered 2022 hopeful for recovery, but that recovery has not yet begun, and urgent action is now needed to help mitigate spiralling energy costs and ensure the sector remains globally competitive to encourage the investment essential to growth, job security and the delivery of net zero ambitions.”

Two years of semiconductor shortages will also impact UK government plans to increase electric vehicle public charging points numbers from 30,000 to 300,000 by 2030.

Lewis Gardiner, head of operations at charging firm Osprey, told iNews charging point operators were struggling to make deployment targets. “It definitely has impacted the rollout throughout 2021. It has been difficult, and it has limited how many chargers we can get out on the ground,” he said.

The White House previously issued a memo advising the US chip industry to diversify neon suppliers. When Russia invaded Crimea in 2014, neon prices rose by 600%.

Neon is a byproduct of steel manufacturing, sold on from Ukrainian steel mills which purify oxygen for steel-making. Cryoin and Ingas shuttered their operations in Odessa and Mariupol respectively after Russian troops escalated attacks throughout Ukraine.

Robert Ledger, emerging markets analyst at Shroders, said most companies had neon inventory for six months, and would absorb the price spike rather than worry about long-term supply. “Other sources should be found before inventory is wound down, but from precisely where is unclear at present,” he said.

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