Both firms have shuttered their operations, according to
company representatives contacted by Reuters, as Russian troops have escalated
their attacks on cities throughout Ukraine, killing civilians and destroying
key infrastructure.
The stoppage casts a cloud over the worldwide output of
chips, already in short supply after the coronavirus pandemic drove up demand
for cellphones, laptops, and later cars, forcing some firms to scale back
production.
While estimates vary widely about the amount of neon stocks
chipmakers keep on hand, production could take a hit if the conflict drags on,
according to Angelo Zino, an analyst at CFRA.
"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," he said.
Before the invasion, Ingas produced 15,000 to 20,000 cubic
metres of neon per month for customers in Taiwan, Korea, China, the United
States, and Germany, with about 75 percent going to the chip industry, Nikolay
Avdzhy, the company's chief commercial officer, said in an email to Reuters.
The company is based in Mariupol, which has been under siege
by Russian forces. On Wednesday, Russian forces destroyed a maternity hospital
there, in what Kyiv and Western allies called a war crime. Moscow said the
hospital was no longer functioning and had been occupied by Ukrainian fighters.
"Civilians are suffering," Avdzhy said by email
last Friday, noting that the company's marketing officer could not respond
because he had no internet or phone access.
Cryoin, which produced roughly 10,000 to 15,000 cubic meters
of neon per month, and is located in Odessa, halted operations on February 24
when the invasion began to keep employees safe, according to business
development director Larissa Bondarenko.
Bondarenko said the company would be unable to fill orders
for 13,000 cubic meter of neon in March unless the violence stopped. She said
the company could weather at least three months with the plant closed, but
warned that if equipment were damaged, that would prove a bigger drag on
company finances and make it harder to restart operations quickly.
She also said she was unsure the company could access
additional raw materials for purifying neon
The Economy Ministry of Taiwan, home to the world's largest
contract chip maker TSMC, said that Taiwanese firms had already made advanced
preparations and had "safety stocks" of neon, so it did not see any
supply chain problems in the near term. The statement to Reuters echoed similar
remarks from Taiwan's central bank earlier on Friday.
But smaller chipmakers may be harder hit, according to Lita Shon-Roy,
president of Techcet.
"The largest chip fabricators, like Intel, Samsung, and
TSMC, have greater buying power and access to inventories that may cover them
for longer periods of time, two months or more," she said. "However,
many other chip fabs do not have this kind of buffer," she added, noting
that rumours of companies trying to build up inventory have begun to circulate.
"This will compound the issue of supply availability.”
Ukrainian neon is a byproduct of Russian steel
manufacturing. The gas, which is also used in laser eye surgery, is produced in
China as well, but Chinese prices are rising steadily.
Bondarenko says prices, already under pressure after the
pandemic, had climbed by up to 500 percent from December. According to a
Chinese media report that cited Chinese commodity market information provider
biiinfo.com, the price of neon gas (99.9 percent content) in China has
quadrupled from CNY 400 /cubic metre in October last year to more than CNY
1,600 /cubic metre in late February.
Neon prices rose 600 percent in the run-up to Russia's 2014
annexation of the Crimean peninsula from Ukraine, according to the US
International Trade Commission.
Companies elsewhere could initiate neon production but it
would take nine months to two years to ramp up, according to Richard Barnett,
chief marketing officer of Supplyframe, which provides market intelligence to
companies across the global electronics sectors.
But CFRA's Angelo Zino noted that companies may be unwilling
to invest in that process if the supply crunch is seen as temporary. © Reuters
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