Explained: Why the Russia-Ukraine crisis may lead to a shortage in semiconductors

What is the News?

The supply of semiconductors is being threatened once again by the Ukraine crisis. This is on account of the supply of two key raw materials — neon and palladium — that are at risk of being constrained.

Why is there a shortage of semiconductors?

Palladium and Neon are two resources that are key to the production of semiconductor chips. Russia supplies over 40% of the world’s palladium and Ukraine produces 70% of neon.

However, due to the Ukraine crisis, there will be a shortage in supply of these raw materials, which may impact the production of semiconductor chips.

For instance, during the 2014-15 Crimea invasion, neon prices went up several times over, serving as an indication of the seriousness of the current crisis for the semiconductor industry.

Expected Impact of Chip Shortage: A key feature in a chip shortage is that it almost always causes cascading effects, given that the first one creates pent-up demand that becomes the cause for the follow-up famine.

Why are neon and palladium important for chip-making?

Neon gas is used in the photolithography process that is the most common method for fabricating integrated circuits. But for use of neon gas in the semiconductor industry, the gas has to reach 99.99% purity levels — which makes it a rarity. 

Palladium is used for multiple purposes in semiconductor and electronic manufacturing. It is used to a) coat electrodes that help control the flow of electricity and b) plating of microprocessors and printed circuit boards — which is an essential process of chip making. 

Source: This post is based on the article “Explained: Why the Russia-Ukraine crisis may lead to a shortage in semiconductors” published in Indian Express on 14th Mar 2022.