Chip scarcity may get worse amid Ukraine conflict

Contact Counsellor

Last Updated02/03/2022

The Russia-Ukraine conflict: likely to aggravate the global semiconductor shortage as the two countries are major suppliers of raw materials critical to chip production.

Semiconductor chips are integral parts of the powertrain, chassis, safety systems, advanced driver assistance systems, and other parts of automobiles.
In comparison to commercial vehicles or two-wheelers, they are employed more in passenger vehicles.
With the slowing supply of semiconductor chips, the automobile sector's manufacturing is also suffering.

Russia supplies the global semiconductor industry with rare metals.
Ukraine supplies specialty gases required by the chipmaking industry.
Neon and helium are both gases critical to the production of chips: Russia and Ukraine are both major players in the global supply chain.
Neon prices went up more than 10 times following the Russian annexation of Crimea in 2014.
Palladium(another key component): may be affected because Russia controls a quarter of the world’s palladium stock.
From Ukraine: Iron ore, semi finished iron and iron bars are among the four largest commodities imported by APAC countries.

Currently, semiconductor manufacturing is dominated by companies in the U.S ,Japan, South Korea, Taiwan, Israel and the Netherlands.
These chipmakers produce up to 70% of the world’s semiconductors, according to estimates by NXP semiconductors.
The European Commission has announced a public-private semiconductor alliance with the goal of increasing Europe’s chip production share to 20% by 2030.
South Korea has offered various incentives to attract $450 billion in investments by 2030.

More than 90% of global companies already have their R&D and design centers for semiconductors but never established their fabrication units.
Although India has semiconductor fabrication units in Mohali and Bangalore, they are purely strategic for defense and space applications only.

These supply stresses could potentially impact the manufacturing of automobiles and electronic equipment in the Asia-Pacific region.
The conflict can quickly exhaust thin semiconductor inventories, disrupting production worldwide and affecting the fragile global economic recovery.
It will likely result in higher chip prices.
The conflict contributes only indirectly to higher energy prices via blockages of shipments from Russia.
The report concluded that the impact would be much smaller on the APAC region than what is expected in Europe.

Impact of the war between Russia and Ukraine on the country’s trade with the two neighbors is worrying.
Government has to cut excise duty on fuels if the current surge in crude price lingers longer than can be absorbed by state-run fuel retailers.
Food price inflation could stay higher for longer due to high energy prices or disruption of shipments of wheat, corn and edible oils.

The ongoing conflict is now affecting the whole world with already increased inflation due to rising fuel prices.
India has committed almost $10 billion to promote semiconductor manufacturing in the country, but supply disruption of raw materials for the Semiconductor industry will hugely impact this commitment.