Ukraine Conflict Could Prolong Chip Shortage

4. March 2022 | Market

The war in Ukraine is not only affecting energy prices, but could also further complicate the supply of semiconductor chips.

As a result of the war between Russia and Ukraine, prices for gas, coal and metals such as nickel are rising. Less obvious at first glance is that the conflict could also prolong the global chip crisis that has been going on for a good two years, as CNBC among others reports. This is because Russia and Ukraine supply important raw materials for the production of semiconductor chips. Among them is palladium, which is used in sensor and memory chips. With about 40 per cent of the world market, Russia is considered an important supplier of the precious metal. Other raw materials for chip production are also produced there, such as the rare earth scandium and the gas C4F6. Ukraine is the world’s largest exporter of neon. The noble gas is used in high-power lasers that apply structures to semiconductor chips by means of lithography.

The possible effects of the Ukraine crisis on the chip industry are assessed differently. As early as mid-February, according to the Reuters news agency, the US government called on the domestic chip industry to diversify its supply chains. Shortly before that, a study by Techcet, a market research company specialising in electronic components, showed how dependent chip manufacturers in the United States are on Russia. The US Semiconductor Industry Association (SIA), on the other hand, assesses the risks of supply disruptions as low.

Leading chipmakers in Taiwan and South Korea are alarmed, writes Nikkei Asia, and are reviewing their inventories and sources of supply. However, according to Reuters, the Taiwanese government said the war would have little impact on the domestic semiconductor industry. Taiwanese market research firm TrendForce believes the Ukrainian-Russian conflict is unlikely to bring semiconductor manufacturing to a halt in the short term, but could increase production costs. The Nation Thailand newspaper also expects higher prices for chips, citing analysts. If the conflict drags on, chipmakers will feel the impact of the supply shortage.

What seems certain, however, is that the international trade sanctions will have a massive impact on Russia’s supply of semiconductor technology. Above all, the export restrictions from Taiwan could have drastic consequences, as Russia is dependent on suppliers from this country for the production of everything from laptops to military equipment.

Photo: iStock/silverjohn

California MP_Materials