The Russian government approved a decree to limit the export of inert gases, including neon. Argon, helium, neon and other inert gases are key consumables for the operation of lithographic scanners. Neon is used in the manufacturing of semiconductors as a consumable material to support the combustion of excimer lasers. Such lasers are used in photolithographic scanners with a wavelength of 193 nm. Without these inert gases, the production of semiconductors is impossible. These gases were supplied from Russia to Japan and other countries. At the same time, Russia has also announced plans to increase the capacity for the production of inert gases. Neon is produced as a by-product of steel smelting.
“Russia supplies up to 30% of neon, xenon and krypton from global consumption. Inert gases are one of the basic ingredients for the production of semiconductors. Gas production capacity is planned to be increased,” the Ministry of Industry and Trade release said.
The ministry also said that the production of chips had been established in Russia. In particular, the Mikron company is engaged in the production of such products, which announced plans to increase capacity.
The world may lose 50% of inert gas supplies
Russia and Ukraine used to supply more than half of the volume of neon to the global market. Since the war, supplies of neon from Ukraine have ceased due to the shutdown of factories in Mariupol and Odesa. Now neon is produced in major quantities only in China and Russia. The Ukrainian plants Cryoin and Ingas used to purify neon obtained from Russian plants, so supplies from Ukraine were doomed anyway.
In April, the European Union (EU) introduced the fifth package of anti-Russian sanctions. Among other things, a ban on the export of semiconductors, its machinery and its transport equipment to Russia in the amount of €10 billion was approved. The ban on the export of inert gases to the EU and other unfriendly countries from Russia will force the EU to look for common ground in business, and the Russian Ministry of Industry and Trade hopes to build a constructive dialogue. At the same time, many foreign companies have previously stated that they are not too dependent on Russian supplies, and they have long-established supplies from various sources.
World Chip production may be hit
The microchip industry had begun to prepare for possible problems with the supply of neon from Ukraine in 2014. Since then, the industry has created a stock of neon for a period of 3 to 12 months and diversified supply channels. All major players hope to avoid a shortage of neon, but there is no guarantee of this.
According to analysts at the consulting company Techcet, the world consumption of neon for the semiconductor industry last year amounted to 540 tons. Ukraine, according to Techcet, supplied more than half of this volume to the market. Without these deliveries, chip manufacturers will receive less than 270 tons in 2022. Stocks will have to be replenished, and they will overpay Chinese companies. During the first three weeks of the crisis, the cost of neon in China increased by almost nine times, i.e., $2,500 per cubic meter, and this is clearly not the limit. Against the backdrop of rapidly growing demand, China expects to increase its share of world neon production from 30% to 50%.
“Of all the materials used in the manufacture of microcircuits, the supply of which could be affected due to events in Ukraine, it is neon that represents the greatest potential problem,” a semiconductor analyst at research firm Bain & Co, Peter Hanbury, told CNBC.
Intel told CNBC that it is closely monitoring the situation. The company has assessed the potential impact of the Russian-Ukrainian conflict on its supply chain; a company spokesperson told CNBC. The company’s strategy of having a diverse, global supply chain minimizes the risk of possible local outages.
Chinese neon makers say they are prepared and can meet the demand for neon for domestic chip production and will probably even have some left for sale. The rest of the world will have to make do with what’s left.
Does Russia have a bargaining chip?
There is a certain readiness in the semiconductor industry to avoid the shortage of neon and its impact on production. Since 2014, the industry’s dependence on Ukrainian-made neon has decreased to about 40%. Neon factories remain intact in Odesa, although Mariupol production appears to have been damaged, if not destroyed. If the situation is resolved in the coming months, Russia will have bargaining power. At the same time, Ukrainian factories source 90% of raw materials from Russia. Therefore, Russia could have the leverage to resume deliveries of neon to the world market.
