Global neon production limited due to Russia-Ukraine war

Ukrainian neon supply firms Ingas and Cryoin have recently closed down following the continued attack on Ukraine from Russia.

According to reports, Ukraine alone produces half of the world's neon, which are important components in the production of electronic chips. Reports further suggest that there have been threats to raise prices and aggravate the semiconductor shortage as well.

Some 45% to 54% of the world's semiconductor-grade neon, critical for the lasers used to make chips, comes from two Ukrainian companies, Ingas and Cryoin, according to Reuters calculations based on figures from the companies and market research firm Techcet. Global neon consumption for chip production reached about 540 metric tons last year, Techcet estimates.

Both firms have shuttered their operations, according to company representatives contacted by Reuters, as Russian troops have escalated their attacks on cities throughout Ukraine, killing civilians and destroying key infrastructure.

The stoppage casts a cloud over the worldwide output of chips, already in short supply after the Covid-19 pandemic drove up demand for cell phones, laptops and later cars, forcing some firms to scale back production.

Before the invasion, Ingas produced 15,000 to 20,000 cubic metres of neon per month for customers in Taiwan, Korea, China, the United States and Germany, with about 75% going to the chip industry, Nikolay Avdzhy, the company's chief commercial officer, said in an email to Reuters.

The company is based in Mariupol, which has been under siege by Russian forces. On Wednesday, Russian forces destroyed a maternity hospital there, in what Kyiv and Western allies called a war crime. Moscow said the hospital was no longer functioning and had been occupied by Ukrainian fighters.

Cryoin, which produced roughly 10,000 to 15,000 cubic metres of neon per month, and is located in Odessa, halted operations on 24 February when the invasion began to keep employees safe, according to business development director Larissa Bondarenko.

Bondarenko said the company would be unable to fill orders for 13,000 cubic metres of neon in March unless the violence stopped. She said the company could weather at least three months with the plant closed but warned that if the equipment were damaged, that would prove a bigger drag on company finances and make it harder to restart operations quickly.

Ukrainian neon is a byproduct of Russian steel manufacturing. The gas, which is also used in laser eye surgery, is produced in China as well, but Chinese prices are rising steadily.

Neon prices rose 600% in the run-up to Russia's 2014 annexation of the Crimean peninsula from Ukraine, according to the U.S. International Trade Commission.

Companies elsewhere could initiate neon production but it would take nine months to two years to ramp up, according to Richard Barnett, chief marketing officer of Supplyframe, which provides market intelligence to companies across the global electronics sectors.