As the latest UK economic figures showed a slowdown in industrial output due to supply chain squeezes, Techbuyer’s Chris Nelson explores the impact that Russia’s invasion of Ukraine is having on already strained technology supply chains.
The Russian push into Ukraine is, according to the Kremlin, designed to protect people subjected to bullying and genocide and aim for the “demilitarisation and de-Nazification” of Ukraine. Russia bans the terms “war” or even “invasion”, threatening journalists with jailtime if they do. For Russian leader Vladimir Putin, this is a “special military operation”.
To the rest of the world, Russia is waging a brutal war against the innocent people of Ukraine, forcing some 10 million civilians so far to flee their homes amid the horrors raining down upon the country. Aside from the geopolitical issues, one of the reasons Putin may be targeting Ukraine is to take control of the country’s vast natural resources. If that goal is achieved, it would have serious consequences for the technology sector globally. Lloyd’s List, the UK-based business information service for the global maritime community, predicts the biggest impact will be seen on supply chains in high-end technology. Of course, at Techbuyer we consider these issues a secondary concern to the horrific humanitarian crisis unfolding in front of all of us, on our devices and TV screens. But we also wanted to highlight some other ways in which the crisis may affect anyone buying tech – because the effects could be enormous.
Russia and Ukraine are the biggest global producers of metals such as nickel and iron. Modern mobile phones, laptops and digital cameras rely on nickel-containing batteries. Regarding the semiconductor sector specifically, some 45 per cent to 54 per cent 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. Both Ukrainian firms have shut down 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 since 2019 and made worse by the coronavirus pandemic.
While estimates vary widely about the amount of neon stocks chip makers keep on hand, production could take a hit if the conflict drags on, according to Angelo Zino, Senior Industry Analyst at the US-based investment research provider CFRA.
Zino said: “If stockpiles are depleted by April and chipmakers don't have orders locked up in other regions of the world, it likely means further constraints for the broader supply chain and inability to manufacture the end product for many key customers.”
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 per cent going to the chip industry, Nikolay Avdzhy, the company's chief commercial officer, told Reuters. The company is based in Mariupol, which has been under siege by Russian forces for weeks and where a Russian missile on March 16 destroyed a theatre where hundreds of civilians were sheltering.
Cryoin, which produced between 10,000 and 15,000 cubic meters of neon per month, and is located in Odesa, halted operations on February 24, 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. 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.
Meanwhile, copper, another major Ukrainian export, has found successful application as a lead frame connector for Pentium chips as used in the computer industry. A lead frame is the metal structure inside a chip package that carries signals from the die to the outside. Copper prices have surged from $2.17 per pound in February 2020 to $4.79 this month, according to the investor research provider, Macrotrends.
Russia, on the other hand, is the biggest producer of palladium, accounting for more than 40 per cent of the world’s supply and it is the ninth-largest producer of tantalum. Both metals are also crucial in the manufacture of semiconductors. Palladium prices have risen from $1,509 in March 2020, to $2,257 per US Troy ounce this month, according to Macrotrends. Although tantalum isn’t traded on any public commodities exchange, it is sold as tantalite ores from which the metal can then be extracted. The price is determined after negotiations between the seller and the buyer and sanctions on Russia over the war in Ukraine are likely to push those prices up also.
According to Andriy Futey of the Ukrainian Congress Committee of America, as well as vital elements needed by the technology sector, Ukraine is home to Europe’s largest proven reserves of uranium, the second largest in Europe and tenth in the world for titanium reserves as well as the fourth-largest exporter of titanium, and second-biggest globally in terms of manganese ore reserves.
As well as the hit to the global technology sector, the attack on Ukraine has the potential to put at risk the food supplies of a vast number of individuals – with the worst hit being in emerging nations; the people who need the food the most. Ukraine is a huge country, bigger than France, and the largest single European nation. It is the world’s biggest exporter of sunflower oil, the fourth-biggest exporter of barley and corn and is a leading global exporter of other major foodstuffs. In fact, Ukraine can support the food requirements of around 600 million people.
It is, indeed, a rich prize for Putin to try to win through his brutal and inhumane attack and, should he do so, it would put him in a position to seriously disrupt not just the global technology sector but the lives of many more millions of people. It is not unreasonable to believe that Russia’s cruel and savage destruction of Ukraine infrastructure and the killing and dislocation of its innocent people is in large part driven by the Kremlin’s determination to control the vast sovereign assets of what is a free country.
What is happening today is not a small, local conflict, but a hazard for the whole world. It must stop ASAP.
Photo by Vishnu Mohanan on Unsplash
