Two Ukrainian companies — Ingas and Cryoin — have halted shipments of high-purity neon gas used in semiconductor manufacturing due to the ongoing Russian invasion. The two companies account for a sizeable portion of global high-purity and ultra-high-purity neon supply. For now, chipmakers say they have enough high-purity neon, but the situation is dynamic. However, neon is just one of the problems facing the electronics industry.
According to estimates, these two suppliers of gases control roughly 50% of the global high-purity neon supply to the semiconductor industry in 2022. With Cryoin and Ingas sidelined, the price of semiconductor-grade neon will inevitably increase as their rivals will need to increase output to meet growing demand.
Two Leading Producers of High-Purity Neon Stop Production
Before the war began on February 24, Cryoin produced between 10,000 and 15,000 m3 of high-purity Grade 5.0 (HP, with neon contents of 99.9990%), high-purity Grade 5.5 (HP, with neon contents of 99.9995%), and ultra-high-purity Grade 6.0 (UHP with neon contents of 99.9999%) neon per month (120,000 – 180,000 m3 per year). Grade 5.0 neon is good enough for the semiconductor industry and laser eye surgery, whereas Grade 6.0 is aimed chiefly at research facilities.
According to data cited by Reuters, Ingas produced 15,000 to 20,000 m3 of Grade 5.0 and Grade 6.0 neon per month (180,000 – 240,000 m3 per year). Ingas served customers in Germany, Taiwan, South Korea, China, and the U.S., with 75% of the output supplied to various chipmakers.
Electronic materials advisory firm Techcet estimates that the global semiconductor industry consumed about 540,000 metric tons of high-purity neon gas last year (which roughly equals to 550,080 m3). Assuming that the two companies shipped 360,000 m3 of high-purity neon last year and 75% of their output went to chipmakers, they controlled around 49% of the semiconductor industry-bound neon in 2021. However, their share in the semiconductor-grade neon gas market could be significantly lower as they also produce neon of various purity for other industries.
Cryoin is located in Odessa, which is currently under heavy attack by Russian military forces, whereas Ingas is based in Mariupol, which has been under heavy bombings for days. Cryoin shut down its operations on February 24, when Russia attacked Odessa and other cities in Ukraine. As a result, according to Larissa Bondarenko, business development director at Cryoin, the company will be unable to fill orders for 13,000 m3 in March. Furthermore, even if the violence stops now (which is not going to happen), the company is unsure whether it can access appropriate raw materials to produce neon (which is a byproduct of steel manufacturing).
Chipmakers Have Enough Neon… For Now
Taiwan's Economy Ministry told Reuters that Taiwanese makers of logic and memory chips (TSMC, UMC, Micron, VIS, Winbond, etc.) had secured safety stock of high-purity neon but declined to elaborate. Intel, GlobalFoundries, and Micron earlier said that they have a diversified supply chain and stocks of high-purity neon at fabs.
"If stockpiles are depleted by April and chipmakers don't have orders locked up in other regions of the world, it likely means further constraints for the broader supply chain and inability to manufacture the end-product for many key customers," said Angelo Zino, an analyst at CFRA, in a conversation with Reuters.
As remaining makers of high-purity neon gas are ramping up their production to meet demand, prices of the gas are increasing. Cryoin says that prices of high-purity neon had climbed by up to 500% from December.
ArF immersion lasers used to make fairly advanced chips that require deep ultraviolet (DUV) lithography use a mixture of neon, fluorine, and argon gases. Neon accounts for over 95% of the blend; however, the good news is that modern production tools feature neon recycle systems that reduce actual consumption by over 90%. But while each ArF/DUV scanner does not consume a lot of gases, there are tens of thousands of such scanners installed globally and all of them need neon, fluorine, and argon gases.
Raw Materials Prices Shooting Up
Semiconductor manufacturing is a complex process that takes thousands of steps and plenty of various materials. Modern chips and the electronics industry in general use copper, aluminum, nickel, palladium, platinum, gold, and tin, just to name a few. While prices of raw materials may not have a drastic impact on the price of every chip, they still affect costs.
Prices of aluminum and nickel are increasing because the production of these metals uses a lot of energy, and prices of energy carriers are on the rise. Meanwhile, 37% of palladium and 9% of global platinum output comes from Russia. So, if their supplies are banned, shortages may arise; therefore, everyone is increasing quotes right now.
According to Bloomberg, the London Metal Exchange (LME) had to suspend all nickel trades on March 8 after the price of the metal skyrocketed as much as 250% in two days. Nickel price increased from $23,705 per ton on February 11, 2022, to $48,241 per ton on March 11, 2022 at LME. Prices of aluminum seem to follow a similar trend. In February 2022, this metal cost $3,200 per ton and gradually increased to 3,313 per ton on February 21, 2022. The metal topped $3,984 on March 4, but dropped back to $3,535 on March 9 at LME.
All electronics devices use printed-circuit boards (PCBs) and all PCBs use copper foil (and modern high-end motherboards and graphics cards use loads of copper foil). The price of copper went up from $7,755 per ton in December 2020 to $9,974 – $10,729 per ton in March 2022 at LME.
However, we are talking about spot prices here, and they depend on multiple factors, including geopolitics and energy. Meanwhile, manufacturers tend to have long-term supply agreements, so prices of raw materials do not affect their operations for now. But since spot prices are increasing, contract prices will eventually increase too (albeit not overnight).
DigiTimes reports that makers of SMT (surface mount technology) equipment used to make PCBs were ready to face challenges like components shortages and inflation, but not rising metal prices. Makers of other equipment are conducting operational adjustments, waiting for metal prices to return to acceptable levels, and are modifying purchase and inventory buildup strategies. Due to shortages of electronics, equipment makers are filled with orders for quarters to come.
For now, it is hard to determine the impact of high-purity neon supply and its quotes on prices of logic chips, such as CPUs and GPUs since the main components of their cost is IP and performance. Meanwhile, any disruption in the supply chain tends to affect the prices of DRAM and NAND memory.
As for prices of raw materials, their surging tends to gradually impact prices of electronics, but the problem is that we have an ongoing war in Europe, which now involves three countries, so the situation is unpredictable.