Russian invasion of Ukraine to further strain U.S. chip supply

Russia’s invasion of Ukraine could further strain the supplies of semiconductor chips that have already caused global production disruptions for tech companies and automakers for more than a year.

Russia and Ukraine are critical suppliers of neon gas and palladium that are used to produce semiconductor chips, according to officials.

U.S. neon supply, which is used for lithography processes for chip production, comes almost entirely from Ukraine and Russia, according to Techcet, a California-based market research firm that specializes in critical supply chain materials and components.

Russia produces Neon, a gas that’s a byproduct of steel manufacturing, which is then sourced and purified by a specialized Ukrainian company, according to Techcet. The price of neon shot up 600% the last time Russia invaded Ukraine in 2014.

Russia also is a key Palladium supplier, along with South Africa, and supplies approximately 33% of the global demand, according to Technet. For the automotive industry, palladium also is a key metal used for catalytic converters. Palladium prices jumped by more than 7% Thursday as part of a larger surge in precious metals.

Prior to the Thursday’s invasion, Technet CEO and President Lita Shon-Roy said if the situation escalated and the U.S. imposed more sanctions on Russia, neon supply “would be immediately impacted.”

The White House earlier this month warned chip suppliers to diversify their supply chains in case Russia retaliates against threatened U.S. export curbs by blocking access to key materials, Reuters reported.

“Part of that is working with companies to make sure that if Russia takes actions that interfere with supply chains, companies are prepared for disruptions,” a senior White house official said.

A global shortage of semiconductor chips caused sporadic shutdowns of manufacturing plants, specifically automotive, over the past year or so. Automakers expected the supply crunch to gradually ease throughout this year.

The origin of the shortage dates to early 2020 when Covid caused rolling shutdowns of vehicle assembly plants. As the facilities closed, the chip suppliers diverted the parts to other sectors such as consumer electronics, which weren’t expected to be as hurt by stay-at-home orders.