Russian invasion of Ukraine will further weigh on US chip supply

A chip made by Taiwan Semiconductor Manufacturing Company

TSMC

Russia’s invasion of Ukraine could further strain the supply of semiconductor chips that have already caused global production disruptions for tech companies and automakers for more than a year.

Russia and Ukraine are key suppliers of neon gas and palladium that are used to produce semiconductor chips, officials say.

America’s supply of neon, which is used for lithography processes for chip production, comes almost entirely from Ukraine and Russia, according to Techcet, a California-based market research firm specializing in materials and critical components of the supply chain.

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

Russia is also a key supplier of palladium, along with South Africa, and supplies around 33% of global demand, according to Technet. For the automotive industry, palladium is also a key metal used for catalytic converters. Palladium prices jumped more than 7% on Thursday amid a larger rise in precious metals.

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

Earlier this month, the White House warned chip suppliers to diversify their supply chains in case Russia retaliates against U.S. export restriction threats by blocking access to key materials, reported Reuters.

“Part of that is working with businesses to ensure that if Russia takes any action that interferes with supply chains, businesses are prepared for disruption,” a senior White House official said.

A global shortage of semiconductor chips has prompted sporadic shutdowns of manufacturing plants, particularly autos, over the past year. Automakers expected the supply shortage to gradually ease throughout this year.

The origin of the shortage dates back to the beginning of 2020 when the Covid caused rolling shutdowns of vehicle assembly plants. When facilities closed, chip vendors diverted parts to other sectors such as consumer electronics, which aren’t expected to be as impacted by stay-at-home orders.

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