Semiconductor Materials Impacted by Ukraine/Russia Conflict
The world has its eyes turned to Eastern Europe with the latest events in Ukraine and the supply chain once again is in the middle of another major disruption. In this blog, we will focus on the raw materials and commodities affected, as well as what direct impacts have been identified today and what you can do to build resiliency in your supply chain.
Raw Materials at Risk
Dr. Satya Gupta, President VLSI Society of India, Advisor, IESA, said, “[The] Semiconductor Supply chain is a complex Eco-System involving companies from different countries and continents for raw material, equipment, wafer manufacturing, packaging, fabless companies, distributors and finally electronics products as customers. Any small disruption in any part of this supply chain creates a bubble in this complex supply-chain which affects everybody.”
Ukraine and Russia are sources for a wide variety of commodities from wheat to gold. However, below are the materials that are used by the electronics industry and will have the most impact on the supply chain.
Ukraine has 70% of the world’s supply of neon, a critical gas for lasers used to etch circuit designs into silicon wafers to create chips. One Ukrainian company, Cryoin Engineering Ltd, supplies 90% of U.S. semiconductor-grade neon.
Besides neon’s use cases with lighting and television tubes, the semiconductor industry is dependent on it for chip production. According to Expert Market Research, the semiconductor industry uses nearly half of the world’s supply of neon. The last disruption of neon coming from Ukraine dates back to 2014. At that time, prices for neon gas spiked by 600%.
What makes neon even more complicated in this scenario is that is a byproduct of Russian manufacturing and is purified in Ukraine. “What happens in Russia is that those [steel] companies that have the facility to capture the gas will bottle it and sell it as crude,” said Lita Shon-Roy, president and CEO of TechCet, an electronic materials advisory firm. “Then someone has to purify it and take out the other [gases] and that’s where Cryoin comes in.”
Russia is the second-largest supplier of palladium and the source of 35% used in the United States. This metal is used in sensors, memory, and MLCCs, among other applications. Palladium pricing is at a 7 month high as of March 3rd.
Oil & Gas
In 2020, the New York Times published a top 10 largest oil producers and Russia was listed as third, just slightly behind Saudi Arabia.
As recently as March 8, President Biden issued a ban on Russian oil imports. This could lead to further price increases at the pumps. According to Omair Sharif, founder of Inflation Insights, “the national average gas price could rise to nearly $4.50 this month.”
Europe relies on Russia for around 40% of its natural gas. Most comes through pipelines including Yamal-Europe, which crosses Belarus and Poland to Germany, and Nord Stream 1, which goes directly to Germany. By last year Ukraine was a transit corridor largely for gas going into Slovakia, from where it continued to Austria and Italy.
What is Converge seeing?
As the last two years have taught us, supply chain disruptions are not just at the finished goods and board level component level, but sometimes it is at the raw material level. Converge has expanded our market intelligence and outlook to include a holistic view of raw materials and other critical impact areas of the supply chain to meet the demand of our customers.
In response to these most recent events, Mike Gately, Converge’s Global Commodity Director, stated, “While Converge has not seen any immediate impacts on the shortages of semiconductors and other board level components from the Ukraine conflict, we’ve learned over the past two years to look deeper into the supply chain. We’re assessing multiple areas, down to the raw materials that may affect the semiconductor industry. Any disruption, whether a natural disaster or a geopolitical event, to a key area of the supply chain—from raw materials to fabrication to transportation—will cause a ripple effect that may be felt weeks or months afterwards. But it ultimately will have an impact.” What has yet to be seen is to what degree, when, and for how long these impacts may affect the semiconductor industry.
Immediate changes are being seen in international air freight and transportation. According to the International Air Transport Association (IATA), jet fuel prices rose to USD 141 per barrel on 4 March, 2022, up 27% on the month and are likely to increase further. Airlines are altering their routes, increasing their rates and fuel usage, and decreasing their capacity.
According to many media outlets and industry leaders, the semiconductor shortage, which was predicted to ease around mid-2022, is now likely to worsen and more uncertainty continues.
What should you do in your supply chain strategy?
There are 3 practical ways that you can ensure your supply chain is resilient during this latest event and future disruptions:
- Diversify Your Approved Vendor List. The White House encouraged the chip industry to diversify its suppliers. Take this one step further by partnering with a connected distributor, like Converge, that has the global network, commodity expertise, and a pulse on the market to help you make better decisions, faster.
- Share Your Critical Parts. By sharing your critical parts lists with your approved vendors and partners, they will be able to keep tabs on any activity in the market that may impact those parts and prevent line-down situations.
- Check Your Excess Inventory. It may not seem like the time you’re concerned with excess inventory, but you may have stock that can sell at a premium right now and provide you an opportunity to offset any increased costs on those critical components.
A lot has yet to be seen and the full effects of the conflict in Ukraine, the sanctions placed on Russia, as well as other key decisions made by global companies are being closely examined and analyzed by our expert commodity team.
Contact your Converge rep for up-to-date information, where risks are most critical, and the actions to take.