Russia’s invasion of Ukraine to increase pressure on the supply of American chips

Slide made by Taiwan Semiconductor Manufacturing Company


Russia Invasion of Ukraine It could further strain supplies of semiconductor chips that have already caused disruptions to global production for tech companies and automakers for more than a year.

Russia and Ukraine are important suppliers of neon and palladium gas, which are used to produce semiconductor wafers, according to officials.

The supply of US neon, which is used in lithography processes to produce chips, comes almost entirely from Ukraine and Russia, according to Techcet, a California-based market research firm that specializes in critical supply-chain materials and components.

Russia produces neon gas, a by-product of steelmaking, which is then obtained and purified by a specialized Ukrainian company, according to Techcet. The price of neon went up 600% the last time Russia invaded Ukraine in 2014.

Russia is also a major supplier of palladium, along with South Africa, providing roughly 33% of global demand, according to Technet. For the automotive industry, palladium is also a major metal used in catalytic converters. Palladium prices jumped more than 7% Thursday as part of a Significant increase in precious metals.

Ahead of the invasion on Thursday, Technet CEO and President Lita Shon-Roy said that if the situation escalated and the United States imposed more sanctions on Russia, neon supplies would “immediately be affected.”

The White House earlier this month warned chip suppliers to diversify their supply chains in the event Russia retaliated against US export restrictions by blocking access to key materials, Reuters reported.

“Part of that is working with companies to make sure that if Russia takes actions that interfere with supply chains, companies are prepared for disruption,” a senior White House official said.

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A global shortage of semiconductor chips has caused intermittent shutdowns of factories, especially automobiles, over the past year or so. Automakers expected the supply crunch to gradually subside throughout this year.

The origin of the shortage goes back to early 2020 when Covid caused the rolling shutdown of vehicle collection stations. With the closures of facilities, chip suppliers have shifted parts to other sectors such as consumer electronics, which were not expected to be hit by stay-at-home orders.

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