Russia’s attack on Ukraine rapidly escalated into a humanitarian disaster, with several thousand killed—soldiers on both sides and Ukrainian militia volunteers and civilians—and more than 650,000 Ukrainian refugees forced to flee the violence (as of March 1).
Along with this human suffering, the war has triggered deep and costly disruptions to supply chains—including the already strained semiconductor value chain: Ukraine and Russia are key producers of neon and palladium.
Palladium is used in sensor chips and many types of memory chips, and neon is essential for chip lithography. According to a special report from Resilinc analysts, Russia produced 40% of global palladium in 2021. Ukrainian neon—refined by Cryoin in Odesa, Ukraine, from Russian crude neon gas—supplies much of semiconductor manufacturers’ neon, especially those manufacturers based in the U.S.
The Resilinc report also reveals that the 2014 Russian seizure of Crimea pushed neon prices up 600%; the shock sent much of the chip industry scrambling to diversify its supply. Even with Korean, Dutch, and Japanese semiconductor manufacturers reducing their dependence on Ukrainian and Russian neon, those two countries still supply 40% to 50% of semiconductor grade neon globally; this according to the Wall Street Journal which quoted market research firm Techcet CA LLA.
The U.S. semiconductor sector is particularly vulnerable. An industry analyst interviewed by Wired estimated 80% to 90% of neon coming into the U.S. was from Ukraine. This dependency led the Biden Administration to warn chip makers on February 10 to seek other sources. Now that war has broken out, “any disruption in Ukraine will hit chipmakers at a time when the industry is already under intense pressure from post-pandemic demand,” wrote Wired’s Morgan Meaker.
For alternate sources of neon, the most likely country is China. But the concern there is the obvious geopolitical tension between the U.S. and China: it might be hard for the U.S. to swallow its pride and reach out for neon.
As of February 28, Ukrainian-based Cryoin had temporarily shut down production so employees could stay home. But regardless of the short-term outcome of combat, the sanctions being imposed on Russia are likely to result in major price increases for palladium.
There’s also the possibility that Russia will retaliate against the U.S. for banning export of advanced semiconductors to Russia, and convincing Japan, South Korea, and chip-making leader Taiwan to follow suit.
As the Russia-Ukraine situation unfolds, Resilinc will continue to publish updates on the situation’s impact to the supply chain. You can view and download (for free!) our most recent Special Reports via our Resources page or visit our Blog for the latest news.