“Global Chip Production Depends on Russian Gas Shortage: High-Purity Neon Prices Increase”

Chip vendors are forced to buy neon for their production six to seven times more expensive than a year ago. This is due to the shortage of Russian gas, which the whole world is trying to replace, but so far in vain. Russia intends to take 25% of the world market for the production of high-purity neon during 2023.

Forced overpayment

The Taiwanese company TSMC, the world leader in the microelectronics manufacturing market, admitted that it had to overpay for high-purity neon by six to seven times due to the lack of supplies of this gas from Russia and Ukraine, writes Reuters. This gas is an indispensable material used in laser systems for the production of various microcircuits, including central processors.

TSMC is the world’s largest chip vendor, accounting for over 50% of the global semiconductor manufacturing market in 2022. According to the CEO of the company C.C. Way (CC Wei), TSMC is forced to incur additional costs for the purchase of neon due to the shutdown of both enterprises in Ukraine for its production, which provided up to half of the world’s output of this gas.

We are talking about the Krioin factories in Mariupol and Ingaz in Odessa. The head of TSMC connects their temporary inoperability with the events that began on February 24, 2022.

Mysterious Springs

CC Wei did not specify which countries became the source of high-purity neon for TSMC and replaced Ukraine in this regard. It could very well be China, despite strained relations between Taiwan and China. Both Ukrainian factories have not been operating since the spring of 2022, and their Chinese competitors immediately tried to capture the vacant niche, not forgetting to raise prices along the way. As a result, throughout 2022, global prices for high-purity neon were 20 times higher than in January 2022.

TSMC assures that expensive neon should not greatly affect the company’s prices, that is, the production of chips at its factories, if it rises in price, then not much. Exactly how the company intends to hold prices is still unclear, but CC Wei has hinted that TSMC will try to take it by quantity. According to him, while in some areas (in the computer and “smartphone”) there is a drop in sales and, as a result, a drop in orders for the release of the corresponding CPUs, in the automotive sector, on the contrary, an increase in orders for chips for on-board equipment is recorded.

Asian partners do not help

The shutdown of Cryoin and Ingas has hit the semiconductor manufacturing industry hard, and many companies are currently trying to make up for the shortage of neon. So, in January 2023, CNews wrote about a sharp increase in the rate of synthesis of this gas at the plants of the South Korean company TEMS – it not only increased the production of high-purity neon, but also reduced selling prices for it.

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The TEMS initiative was a beacon of hope for TSMC and other contract chip vendors, but after four months they are still paying extra for the gas. It is possible that TEMS works primarily in the interests of the companies of its country – Samsung, for example, also has factories for the production of microcircuits, and it is one of the main competitors of TSMC. SK Hynix is ​​also a client of TEMS, since it owns production facilities for the production of memory chips.

TSMC, in general, does not really want to depend on other countries in terms of the supply of raw materials it needs. In order not to overpay foreign partners, she is looking for ways to switch to neon synthesized by Taiwanese companies – the process was launched in November 2022, and the company allocated five years to implement the plan.

And what about Russia

Russia also has plans for the world market of high-purity neon. Back in the summer of 2022, the Russian authorities were talking about plans to ensure the release of 25% of the global volume of this gas during 2023.

This was stated by the head of the Ministry of Industry and Trade Denis Manturov within the framework of the meeting of the President of Russia Vladimir Putin with members of the Russian government. At the time of publication of the material, the size of the Russian share in the neon market was not known.