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Supply chain watches nervously over Russia-Ukraine tension


Tensions between Russia and Ukraine have risen after Russia recognized the independence of Donetsk and Luhansk in eastern Ukraine. Russia's massive military build-up at the Ukrainian border has raised tensions in Ukraine and heightened fears of a full-scale Russian invasion. As western countries are threatening to impose sanctions on Russia in case of a full-scale invasion in Ukraine, the market is vigilant regarding possible impacts on global supply chains.

Even though a full-scale invasion may not be imminent, a DBS CIO perspective report cites a decree signed by Putin saying that "peacekeeping" troops have been dispatched to the breakaway region of eastern Ukraine, and it appears that Russian troops will remain there indefinitely.

"A bigger threat from the Ukraine crisis will be the spike in energy prices," said the DBS CIO report. The prices of nickel and palladium have also risen significantly over the past few trading days.

In an interview with Bloomberg TV, Micron CEO Sanjay Mehrotra said that some of Micron's inert gas for memory manufacturing comes from Ukraine, the supply chain is still in normal condition. In addition, Micron has a large inventory and multiple sources of supply, and will continue to pay attention to the follow-up development. He also stressed that the rising conflict between Russia and Ukraine has highlighted the complexity and vulnerability of the semiconductor supply chain.

In Taiwan, the United Microelectronic Corp (UMC) also said they have sources of inert gases other than Ukraine. Media sources also said the UMC has sought to sign a long-term contract with those suppliers.

Russia is an important exporting country for nickel and palladium, providing more than 40% of the world's nickel and palladium. Nickel is an important ingredient for stainless steel and electrical vehicles, while palladium is used in automotive catalytic converters, smart phones, sensors, memory, electrodes, and even dental fillers.

Gases and rare metals such as helium, neon, argon, krypton, and xenon also come from the Russian-Ukrainian region; these gases are key materials for semiconductor exposure and etching processes, which may cause the semiconductor industry to be affected by material shortages again.

Research firm TECHCET released a report early in February quoting its CEO/President Lita Shon-Roy as saying that Russia is likely to retaliate against western sanctions by withholding critical materials needed for semiconductor production, because the conflict may impede exports from Ukraine. If this were to happen then the neon supply would be immediately impacted.

Reuters reported on February 11 that the White House has warned the US chip industry to diversify its supply chain in case Russia retaliates against threatened U.S. export curbs by blocking access to key materials.

According to TECHCET estimates, over 90% of U.S. semiconductor-grade neon supplies come from Ukraine, while 35% of U.S. palladium is sourced from Russia. Meanwhile, Russia is also a crucial source of hexafluorocyclobutene (C4F6), which several US suppliers buy and purify for use in advanced node logic device etching and advanced lithography processes for chip production.

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