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Ukraine Invasion Could Worsen Microchip Shortage, Taiwan Invasion Would Make It Worse

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Donald Standeford, Correspondent/Publisher By Donald Standeford, Correspondent - Follow -
Date Published: March 11, 2022 04:40AM UTC
Last Modified: March 11, 2022 04:40AM UTC

RUSSIA/UKRAINE - The Russian invasion of Ukraine could worsen microchip shortages due to the fact that Ukraine produces around 70% of the world's neon. Neon gas is used to run the lasers necessary for manufacturing semiconductors.

Richard Betzendahl, who runs a firm that researches the gas stated, "[The] excimer laser, which is the high-powered laser that could drill holes through metal and so forth, it needs neon".


During the manufacturing process for semiconductors, the lasers (which require neon gas to run) etch circuitry patterns onto silicon wafers. Nina Turner, a semiconductor analyst with IDC said, "It’s creating … a puzzle piece. You’re taking these different patterns and putting them down on the wafer".


In addition to semiconductor and microchip shortages, the war between Ukraine and Russia could also cause vehicle prices to rise. Russia is the leading producer of palladium, which is used to manufacture catalytic converters for automobiles. For every 1 million vehicles, about 100,000 to 150,000 ounces of palladium are used. Each vehicle uses about 2 to 6 grams of palladium, which is currently priced at $102.56 per gram.


There is also a looming threat of a Chinese invasion of Taiwan. If China were to invade Taiwan, it could worsen microchip Shortages even further, as Taiwan produces around 92% of the world's most advanced (below 10nm) semiconductors and 60% of the worlds microchips and semiconductors.


In an Earlier Report in May of 2021 we had quoted Martijn Rasser, who works for a Washington think tank saying "by gaining control over Taiwan’s semiconductor industry, China would control the global market. They would have access to the most advanced manufacturing capabilities and that is even more valuable than controlling the world's oil".


Furthermore, both China and Russia are leading producers of the world's aluminum. The average vehicle contains between 459 and 610 pounds of aluminum. Aluminum is about $1.40 per pound, and the price has already increased by 24% over the last six months approaching a 10-year high.

Due to the fact that chip makers had ample time to prepare for a Russian invasion of Ukraine,they have built up their stocks of neon gas and are reported to have months worth of it on hand. This means that we aren't likely to see major increases in semiconductor or microchip prices right away. At least not until those stocks begin to run short.


Turner said, "I think companies are downplaying their worry [regarding neon shortages]. But I do think they are putting contingency plans into place as we speak".


The Semiconductor Industry Association, which is a trade group for American chip makers put out a statement saying that many companies have at least two to three months worth of neon gas stocks on hand. This is because chip makers remember the 2014 invasion of Ukraine and how much the price for neon gas jumped at that time.


After Russia annexed the Crimea peninsula in 2014, neon prices jumped up by 600 percent. The invasion that is happening now is happening throughout the entire country and has already caused a number of production pauses in European plants.


"That was a bad time, and what happened back then was China — they put in a lot of neon capacity" industry consultant Betzendahl stated.


Cryoin Engineering, which is based in Odesa, Ukraine which had been exporting neon to locations throughout the world, including the US, stopped producing neon earlier this month.


Business development director of Cryoin Engineering Larissa Bondarenko said that she's worried that the bombing will damage or destroy the manufacturing plant. "There’s a high risk that the port will be destroyed, then the logistics will be much, much harder to restart" she stated, adding that around 80% of the company's workforce is men who are now required to defend their country.


Carla Bailo, CEO of the Center for Automotive Research stated, "Of course, people will look for alternative sources of neon as quickly as they can — but that’s not something that can just be switched on. Eventually, if semiconductors don’t come, we’ll be right back to where we were last year".


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