New Crisis in Semiconductors: Neon Gas Prices Soar 9 Times

According to MoneyDJ, the war between Russia and Ukraine has halted the operations of the Ukrainian industry, which supplies half of the world's neon gas, and the price of neon has soared nearly nine times in China. Neon is a key raw material for chip manufacturing, which has cast a shadow over the global semiconductor supply.

The South China Morning Post reported that the average wholesale price of neon gas for industrial use in China hit 16,000 yuan (equivalent to $2,500) per cubic foot last Thursday (March 17), nearly nine times the price quoted on Feb. 24 (1,850 yuan), according to Zuotron, a website specializing in tracking Chinese commodity prices.

Liu Yin, business manager of Shanghai-based specialty gas supplier Song Ci Technology, said the Russian-Ukrainian war has disrupted supply and demand, causing prices to spike wildly, and that neon gas is forecast to become more expensive as Ukrainian plants are unlikely to resume operations anytime soon.

Chen Zhina, manager of Naxin Special Gases in Changzhou, Jiangsu province, said that China's share of global neon supply could rise from the current 30 percent to 50 percent as some foreign buyers switch to Chinese suppliers, according to a South Morning report. 30%.

Two major Ukrainian neon gas suppliers have ceased operations

According to calculations by the two companies and market research firm TechNet, about 45 to 54 percent of the world's semiconductor-grade neon gas is essential for lasers used to make chips. The neon comes from two Ukrainian companies, Ingas and Cryoin, and Techcet estimates that global consumption of neon gas for chip production reached about 540 metric tons last year. According to company representatives contacted by Reuters, both companies have shut down their operations. as Russian forces escalated attacks on cities across Ukraine, killing civilians and destroying key infrastructure. The shutdown casts a pall over global chip production, which is already in short supply after a coronavirus pandemic pushed up demand for cell phones, laptops, and later cars, forcing some companies to scale back production. 

CFRA analyst Angelo Zino said that while forecasts for neon inventories in the hands of chipmakers vary widely, production could take a hit if the conflict persists. "If inventories run out in April and chipmakers don't lock in orders in other parts of the world, it could mean further constraints on the broader supply chain and an inability to make final products for many key customers," he said. Before the invasion, Ingas was producing 15,000 to 20,000 cubic meters of neon gas a month for customers in China, Taiwan, South Korea, mainland China, the United States, and Germany, with about 75 percent going to the chip industry, Nikolay Avdzhy, Ingas' chief commercial officer, said in an email to Reuters. The company is headquartered in Mariupol, which has been surrounded by Russian troops.

On Wednesday, Russian troops destroyed a maternity hospital there, which Kiev and Western allies called a war crime. Moscow says the hospital is no longer functioning and has been taken over by Ukrainian militants. Avdzhy said in an e-mail on Friday:" Civilians are suffering." He noted that the company's marketing officer could not respond because he had no Internet or phone access. 

Cryoin is located in Odessa and produces about 10,000 to 15,000 cubic meters of neon gas per month, according to Larissa Bondarenko, director of business development. The company ceased operations when the invasion began on Feb. 24 to secure employees. Bondarenko said the company will not be able to fulfill its 13,000 cubic meter order for neon gas in March unless the violence stops. She said the company could get through at least three months with the plant shut down. But warned that if the equipment is damaged, it would be a bigger drag on the company's finances and make it more difficult to restart operations quickly. She also said she was unsure if the company could get additional raw materials to clean up the neon. 

Taiwan's Ministry of Economic Affairs, where TSMC, the world's largest foundry chipmaker, is based, said the Taiwanese company had prepared in advance and had a "safety stock" of neon gas and would not have supply chain problems in the near future. The statement to Reuters echoed similar comments made by Taiwan's central bank earlier on Friday. But Techcet President Lita Shon-Roy said smaller chipmakers could be hit harder. "The largest chipmakers, such as Intel, Samsung, and TSMC, have greater buying power and inventory and may be around for longer, two months or more," she said. "However, many other chipmakers don't have that cushion," she added, noting that rumors have started to circulate about companies trying to build up inventories. "This will exacerbate the supply problem." 

Neon gas in Ukraine is a byproduct of Russian steel manufacturing. The gas, which is also used in laser eye surgery, is also produced in China, where prices are steadily rising. Prices are already under pressure following the pandemic, which saw a 500 percent increase from last December, Bondarenko said.

The price of neon gas with 99.9 percent content in China has quadrupled from 400 yuan per cubic meter last October to more than 1,600 yuan per cubic meter at the end of February this year, according to a Chinese media report citing biiinfo.com, a Chinese commodity market information provider. According to the U.S. International Trade Commission, neon gas prices rose 600 percent before Russia annexed the Crimean Peninsula from Ukraine in 2014. 

Richard Barnett, chief marketing officer at Supplyframe, which provides market intelligence to companies in the global electronics industry, said companies elsewhere could start production of neon, but it would take nine months to two years to do so. But CFRA's AngeloZino notes that companies may be reluctant to invest in the process if the supply crunch is seen as temporary.

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