By Alexandra Alper

WASHINGTON, (Reuters) – Ukraine’s top two suppliers of neon have halted operations. Moscow’s aggressive approach to the country has caused them to retaliate by threatening increased prices and worsening the shortage of semiconductors.

Based on information from these companies as well as Techcet, Reuters calculated that between 45% and 54% of world’s neon-grade semiconductor, which is critical to the production of chips, came from Ingas (Ukraine) and Cryoin (Ukraine). Techcet estimates that global neon consumption in chip production was around 540 tonnes last year.

Representatives of both companies told Reuters that they have shut down their operations. This is because Russian troops increased their attack on Ukraine’s cities, killing civilians as well as destroying critical infrastructure.

This stoppage will cast a shadow over global production of chips. Chips were already scarce after coronavirus caused an increase in demand for cars and cell phones. Some firms had to reduce their production.

Although estimates of the quantity of neon stock that chipmakers have on hand vary, there is a possibility that production will be affected if conflict continues, says Angelo Zino (an analyst at CFRA).

He said that “if stocks are low by April and chipmakers do not have any orders from other regions, it will likely mean further restrictions for the wider supply chain and inability of manufacturing the end-product to many key clients.”

Ingas used to produce 15,000 to 20,000 meters of neon per monthly for customers in Taiwan Korea, China and the United States. The company’s chief marketing officer NikolayAvdzhy stated that 75% was going to the chip market.

This company’s headquarters is in Mariupol which was under Russian siege. The Russian military destroyed the maternity facility in Mariupol on Wednesday. This was a crime that Kyiv, Western allies and others called a war crime. Moscow stated that the hospital was not functioning anymore and had been occupied in part by Ukrainian troops.

Avdzhy wrote last Friday that “Civilians suffer,” noting that the marketing officer of the company could not reply because he was without internet access or phone access.

Cryoin was a producer of approximately 10,000-15,000 cubic metres per month and is located near Odessa. According to Larissa Bondarenko (business development director), the company halted production on February 24 after attacks started to protect employees.

Bondarenko claimed that the company wouldn’t be able fill 13,000 cubic meters of neon orders in March without violence. Bondarenko said that the company would be able to weather the closure of the plant for at least three more months, however, she warned that equipment damage could cause financial problems and slow down the process of restarting operations.

Außerdem, she stated that the company may not be able access other raw materials to make neon.

Ukrainian neon is an byproduct of Russian iron and steel production. This gas is used for laser eye surgery. However, prices in China are steadily rising.

Bondarenko claims that prices have risen by as much as 500% since December, despite being already in pressure from the pandemic. A Chinese media report cited biiinfo.com as stating that the cost of neon gas (99.5%) in China had quadrupled in recent months, from 400 yuan per cubic meter last October to over 1,600 yuan/cubic meter late February.

According to the U.S. International Trade Commission, neon prices rose 600% during Russia’s 2014 annexe of Crimea from Ukraine.

According to Richard Barnett (chief marketing officer at Supplyframe), which offers market intelligence to businesses in all sectors of the electronics industry, companies could start neon production elsewhere, but that would require nine months to two year to scale up.

Angelo Zino, CFRA’s Director of Investment, said that some companies might not be willing to invest in this process if they believe the shortage is temporary.