Ukraine: Invasion could affect chip supply chain

Ukraine supplies 90 per cent of the neon gas used in chip production; a reduction could hurt a supply chain that is already struggling

As well as causing massive suffering across the region, Russia's illegal invasion of Ukraine could have a knock-on effect on the global chip supply chain - although not in the short term.

Ukraine supplies as much as 70 per cent of the world's neon gas, Trendforce has warned, as well as other noble gases like argon, krypton, and xenon. All are materials used in semiconductor production.

Neon gas is originally produced in Russia, as a byproduct of steel manufacturing, before being purified in Ukraine. When it comes specifically to semiconductor-grade neon, Ukraine produces more than 90 per cent of the world's supply.

The production process does not require much gas and most semiconductor fabs stockpile supply, so there is little risk of an immediate global shortage. However, there could be a long-term effects.

Russia is also a source of palladium, another component used in chip-making, the price of which has already risen seven per cent in the last 24 hours. The country supplies about a third of global palladium demand.

Large chipmakers told Reuters that they expect 'limited' supply chain disruptions for now thanks to raw material stockpiling and diversified procurement, but there is likely to be a long-term impact. Trendforce warned that the reduction in supply would likely lead to higher prices, which are likely to be passed on to chip buyers.

Techcet president and CEO Lita Shon-Roy told CNBC that the price increase in the chip market would likely not be felt for six months, or possibly as much as a year, thanks to the long-term agreements most manufacturers have for raw materials.

Last time Russia invaded Ukraine, in 2014, neon has prices rose 600 per cent.