The Ukrainian conflict could initiate another Global Chip Shortage

As the conflict drags on, there are of course consequences and around the Port City of Odesa, this is particularly pertinent. 

 

Within this port city now firmly mired in the current conflict, is a company, Cryoin, that produces neon gas. Neon gas is a key substance that powers the lasers that etch patterns onto wafers and Semiconductor chips. 

 

What is more critical is that the Ukraine/Cryoin supplies 50% of this gas to the semiconductor industry. 

 

With the conflict now effectively shutting down all manufacturing at any significant level and certainly in the SW and East of Ukraine, this cessation of any meaningful amounts of neon gas being produced is going to exacerbate an already serious chip shortage scenario that is blighted manufacture and supply of finished goods. Coupled with over 2 years of lock downs , and even now at the time writing , Shanghai is now in lock down ; there is going to be a while lot of pain inflicted into the already strained supply chains and backlogs being experienced, and now the conflict in Ukraine. 

 

Semiconductors without a shadow of a doubt form the backbone of modern society, without which or a shortage of, will severely limit the ability of manufacturers of finished goods, from Mobile phones to aircraft, to maintain production in any meaningful form. 

 

According to Bloomberg even Apple, last year, made some 10 million fewer phones. With this current crisis in Europe, we can expect even less production and can expect severe shortages of products across the spectrum of consumer electronics. 

 

To illustrate the point, a precursor to the current conflict involving the Crimean incident and subsequent inclusion into Russia, the price spiked 600% indirectly linked to the conflict as well blatant profiteering driven by a then competitor to Cryoin, Iceblik. Given that production is now certainly to be curtailed if not severely limited, this may indeed result in higher prices and a shortage to boot. 

 

There is now of course serious concern about this reliance on the gas in semiconductor manufacture. 

 

Cryoin was established to take advantage of the neon industry as one of the by-product of steel manufacture in the production of neon gas , which in the context of the Russian steel industry resulted in a lucrative business model in processing the by-product gas into the highly prized neon gas. 

This coupled with reliance on Russian Steel production for the supply of neon gas in raw form, one can see the perfect storm breaking over this gas and its supply. 

 

Considering that back in 2014, Ukraine/Russia accounted for 70% of neon gas production, the chip industry hustled to break the reliance on Ukrainian neon and for example Cymer (Dutch) and owned by ASML and who make the lasers in question powered by neon, have been actively reducing the reliance on neon in the powering of their laser. 

 

What progress has been made since 2014 in weaning reliance off the Ukraine is sketchy although it is suspected Europe is still reliant to the tune of 20% on Ukrainian neon gas. 

 

Stockpiling (it is assumed) has been taking place since 2014 and hence the alarm bells have not rung yet but as this crisis drags on, these bells will begin to toll. 

 

The main concern however is the reliance the United States has on the Ukrainian supply and has been rumoured at 80- 90 percent of all imports. This reliance will in the short term will have an impact. 

 

Finding alternatives supplies to the Ukrainian / Russian supply and not allowing the shortages to impact on production is going to extremely challenging to say the least.