Chip Crisis Restaged on the Temporary Closure of Two Ukraine Neon Gas Suppliers

SHANGHAI, Mar 22 (SMM) 

Russia-Ukraine conflicts give rise to panics in the commodity market
The Russian-Ukrainian conflict has been ongoing for several weeks and the global commodities market has seen dramatic volatility as a result. This comes after the market erupted in concerns over the supply of Russian nickel metal, with LME nickel prices surging above $100,000 per tonne in a single day.

Recently, according to foreign media reports, affected by the tension between Russia and Ukraine, the two leading neon gas suppliers in Ukraine - Ingas and Cryoin - have both suspended their operations. This move may lead to the loss of more than half of the global neon production. Subject to a chain reaction, a number of car companies have expressed the chip supply shortage may affect the delivery of vehicles, and the market panic continues to ferment.

Ukraine is a major supplier of electronic specific gas and holds 70% of the world's neon gas

According to a report published by market research firm Techcet in February this year, Ukraine's share of global supply of neon (Ne) is as high as 70%. In addition to neon, Ukraine also supplies around 40% of krypton (Kr) and 30% of xenon (Xe) to the world.

Amongst other things, semiconductor grade neon is important for the manufacture of chips. Around 45-54% of the world's semiconductor grade neon is supplied by the two Ukrainian companies, Ingas and Cryoin.

The cessation of operations of Ingas and Cryoin may directly lead to a rapid rise in neon prices and exacerbate the global shortage of semiconductors, ultimately affecting the supply of chips for industries including mobile phones, laptops and automobiles.

Chip supply crisis aggravates as neon prices rise
The prices of neon have reportedly soared due to a shortage of supply, and have increased by 4.5 times compared to the beginning of 2022.

The "chip crisis" previously emerged as a result of the COVID19 pandemic that swept the world. Angelo Zino, an analyst at US investment firm CFRA, said that estimates of existing neon stocks at chipmakers vary widely, but that chip production could be hit if the Russia-Ukraine conflict continues.

A number of car companies may delay the delivery or reduce car production

Hyundai Motor Group has submitted its latest delivery schedule to domestic dealers in Korea, extending the delivery period for a number of popular and new Hyundai and Kia models by a further 1-4 months compared to earlier this year.

For example, consumers who had to wait one year for their vehicles will now have to wait 16 months. Toyota Motor said it would cut its monthly global vehicle production forecast for March to 950,000 units due to a shortage of chips.

The chip shortage has also affected the operation of Hyundai's overseas plants, with the plant in St. Petersburg, Russia, being shut down since this month due to a shortage of chips, and it seems that the resumption of work is still out of reach.

Domestic pandemic is serious and production of some domestic car companies has been disrupted
And in addition to a sharp rise in prices of chips triggered by the neon gas supply crisis that subsequently led to the re-staging of "chip crisis", the pandemic also brought serious obstacles to the production of some of Chinese car companies.

Changchun City Bureau of Industry and Information Technology disclosed on March 13 that, in order to coordinate with the general situation of provincial and municipal pandemic prevention and control, FAW Group (First Automobile Group) decided to suspend the production from March 13 to 16. The document shows that FAW Group has decided to arrange for a planned shutdown of production at all five major vehicle plants in Changchun. The restarting time of the production will depend on the overall situation of and the relevant requirements of the province and the city.

SMM analysis
In summary, SMM believes that the neon gas supply crisis caused by the tension in Russia and Ukraine may have a short-term impact on the supply of chips for the automotive industry.

 "Currently, the world's major chip companies have been increasing the supply of automotive chip, new production capacity will also be released in the second half of this year, and the shortage of automotive chip supply is expected to gradually ease in 2022." Said Wang Weiming, director of the Department of Equipment Industry of the Ministry of Industry and Information Technology earlier this year at a press conference on the review of the automotive industry in 2021 held by the Ministry of Industry and Information Technology.

In the medium and long term, the Development and Reform Commission, the Ministry of Industry and Information Technology and many other departments have repeatedly said that this year, they will focus on solving the shortage of chips in the automotive and other manufacturing sectors, and steadily and orderly enhance the supply capacity of domestic chip production. From a macro policy perspective, it can be seen that China's firm attitude towards independent chip research and development.

The lack of chips that leads to China's automotive enterprises is expected to be alleviated in the long run.

Disclaimer:

The above representation and data is based on market information SMM believes to be reliable at the time of acquiring as well as the comprehensive assessment by SMM research team, and any and all information provided in this article is for reference only. This article does not constitute a direct recommendation for investment or any decisions in any form and clients shall act on their own discreet and any decisions made by clients are not within the responsibility of SMM.