The Russian invasion of Ukraine to further cripple the semiconductor industry

Eyeing the ease of global supply shortage of semiconductors, the hopes of the chip industry crushes on the prospect of a Russian invasion of Ukraine as it hovers yet another black cloud over the sector.

 The increasing possibility of the Russian invasion in Ukraine is likely to stretch the global shortage in semiconductors well into next year as the two potential combatants happen to be the major exporters of key raw materials used in the creation of computer chips.

While Ukraine leads the export of highly purified neon gas, which is necessary for the lasers that are used to etch circuit designs into silicon wafers to create chips. Russia is the world’s leading producer of palladium, an essential for many memory and sensor chips. In addition to this, the country also produces several other key raw materials for computer chips, including the rare–earth metal scandium.

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 Following the news of Russia’s near at hand invasion in Ukraine, the White House has warned the chip industry of possible disruptions and asked them to diversify its supply chains, seeking alternate suppliers in case Russia retaliates against threatened U.S. export curbs by blocking access to key materials, reported Reuters on Friday. 

 The U.S is largely dependent on the two combatants as over 90% of U.S. semiconductor-grade neon supplies come from Ukraine, while 35% of U.S. palladium is sourced from Russia.

Several industrial gases like C4F6, neon, and helium used for the most advanced chipmaking processes are produced as a byproduct of Russian steel production and then refined by specialized Ukrainian firms for use by semiconductor manufacturers. The supply of these gases has surfaced as the biggest concern for the chip makers as the potential war will almost certainly destroy the cross-border nature of this trade. 

 Although the chipmakers have identified their over-dependency on the nations and diversified their supply chains to other countries after the invasion in 2014, which took the price of neon up by 600%, almost overnight, Ukraine remains a key supplier.

 As for palladium, Russia produces more than 45% of the global supply. 

The price of the metal has already run up substantially, as traders anticipate potential supply disruptions if Russia invades Ukraine and the rest of the world imposes severe economic sanctions on Russia in response. It is currently trading at $2,400 per ounce, having climbed 52% since mid-December.

 While the Russia-Ukraine war is unlikely to stop the global chip production, experts believe that the disruptions will undoubtedly pinch capacity, especially for some smaller manufacturers, leading to a spike in the semiconductor prices, at a time when chips are already becoming more expensive owing to the high demand and the COVID-19-related supply-chain disruptions.

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