Supply Chain Management

Rare Earth Scarcity Adds Fuel to Supply Chain Fires

Chip manufacturers can’t seem to catch a break. Tariffs, pandemics, transportation challenges, and now war have impacted rare earth availability, exacerbating supply chain chaos.

Rare Earths and Tech Apps

War in Ukraine hampers the availability of such rare earths as neon, krypton, and xenon, all used in semiconductor manufacturing.

  • Krypton is a noble gas used in halogen and HID lighting and in annealing, etching, and lithography semiconductor production applications.
  • Xenon, a noble gas, is used in many applications, including semiconductor production for annealing, etching, and lithography.

Of significant concern, however, is the potential shortage of neon. Semiconductor-grade neon is vital for manufacturing chips for mobile phones, laptops, automobiles, dynamic random-access memory (DRAM), and flash memory. It is necessary for lasers used in a chip production lithography, where machines carve patterns onto tiny pieces of silicon used for cars and consumer electronics.

  • Although rare-metal palladium is not used for lithography, it is used as one of the components of a metallization structure that improves adhesion to semiconductors. It is used in sensors and memory chips and is also important in catalytic converters for the already hard-hit automotive segment. Ukraine produces 35% of global palladium.

Neon at Ground Zero

Up to 90% of neon used in chip production is produced as a by-product of steel manufacturing in Russia. It is then sent to Ukraine for refining. When Russia invaded Crimea in 2014, prices rose 600%, but now we’re in an even worse situation.

We’ve watched in horror at attacks in Ukraine’s Mariupol and Odesa. In addition to the tragic loss of life and property, the country supplies approximately 70% of global neon. The companies include Mariupol-based Ingas, and Cryoin and Iceblick, based in Odesa. According to Reuters, Ingas and Cryoin have both ceased operations because of the war. It is unknown if any of the companies have been damaged in the bombings.

Global Inventories

Although there is no agreement about the level of neon in current inventories globally, estimates are that it is between two to six months. Some say that sources outside of Ukraine will now be used. However, from production levels in Ukraine until the war, it’s difficult to believe that there will be sufficient quantities or that ramping up new production elsewhere could happen in a sufficiently timely basis. Or course, large companies that use neon, such as Intel, Samsung, and TSMC, have inventory, but supplies at small fabs are likely constrained.

What Now?

It isn’t as bad a situation as it could have been. When Russia annexed the Crimea in 2014, chip manufacturers cut back on neon use in manufacturing, and stock on hand increased for most. If the Ukraine suppliers remain closed or their equipment is damaged, and raw material access is hampered, restarting operations will be complicated. Suppliers did spring up outside of Ukraine. Still, for semiconductor production, even if only 40% comes from Ukraine, given the state of semiconductors today—that’s still a hit. Since many have not diversified their neon sources, count on some severe shortages.

China accounted for approximately 30 percent of global neon, and in just a few weeks after the war in Ukraine started, the average price for industrial-grade neon in China rose 9x. It will likely become even more expensive in the near term as manufacturers deplete their reserves.