It is an age-old truth that conflicts cause crises in the supply of raw materials.Global semiconductor supply chains are not only complex, but also critical for market access to enable a thriving manufacturing ecosystem. There is immense opportunity to source at least 8 to 10 percent of the global semiconductor supply chain from India, which will be valued at around $40 billion by 2030.
The ‘Materials Market’ uses more than 150 types of chemicals and more than 30 varieties of gases and minerals. It is crucial for the entire process chain for any established or ambitious semiconductor entity.
The Indian chemical industry is statistically the sixth largest in the world and the third largest in Asia, contributing almost seven percent to the national GDP. As per available data, the market size of this industry in India is $178 billion and is expected to grow to $300 billion by 2025.
Accordingly, the market size of the Indian steel market is estimated at 136 million tonnes this year and a massive 210 million tonnes by 2029, which is likely to grow at a CAGR of 9.18% during this period, as per available data.
The chemical industry has products that need to be purified to semiconductor quality and the steel industry has byproducts, both of which need to be utilized. One of the crucial byproducts of steel production is neon, a rare gas that is also used in the light-up signs we see on the streets of major cities around the world.
The main downstream application of neon is in lasers. The product is crucial for the semiconductor industry. As part of the manufacturing process, a mixture of gases (Excimer Gas) generates a single wavelength of light for deep ultraviolet lithography.
Neon is the carrier gas in this mixture that is crucial for minimizing defects in the process and for better yield of the chips. Interestingly, the three steps this involves are the availability and production of neon in bulk, its purification, and then its use as part of the final mix. The purification process is key and this technology only exists at a few companies – a fact that makes it difficult to diversify existing supply chains.
More than 50% of the world’s semiconductor-quality neon comes from Ukraine and the two main entities producing it are Ingas and Cryoin. The former Soviet Union manufactured all oxygen steel mills with neon, krypton and xenon capabilities to work on high-powered lasers as weapons, creating a significant neon capability. It may have been a response to the US Strategic Defense Initiative, commonly referred to at the time as ‘Star Wars’. Ukraine and Russia still operate these huge factories that have long since disappeared from Western countries.
Most of the steel mills simply released raw neon into the atmosphere because there were no customers. This situation changed around 2012 when the steel industry worldwide shrank and old processes in existing factories were stopped. The conflict in Ukraine has further complicated this dynamic, as semiconductor lithography processes account for nearly 70% of global neon demand, open source data shows.
It is an age-old truth that conflicts cause crises in the supply of raw materials.
It is noteworthy that neon gas prices increased by up to 600% during the Crimean conflict in 2014. Although prices for Neon could be agreed upon under individual long-term contracts with certain trades being part of the spot markets, conflicts tend to send prices flying. roof. The concentration of supplies in war zones affects overall production figures.
The price of neon has risen almost nine times since 2022, when conflict broke out in Ukraine. With neon production in Ukraine affected, global demand far exceeds supply. Semiconductor manufacturers are trying to find a reliable supply of this noble gas to keep their facilities running.
As part of mitigating the current situation, more options are needed for the supply of neon lighting or a likely reprogramming of lasers to change current processes, which will likely take years. Given the current figures, lowering prices could also take a little longer.
This presents a sensible opportunity for India as Dholera will be home to one of several planned manufacturing facilities, coupled with a gigantic steel industry. The purification aspect could be looked at with strategic alliances, but with an option to diversify global chains and not just look at India-centric consumption in the future.
The policy discourse on this will require inter-ministerial coordination with the business community for time-based implementation. While key players are looking for multiple sources and locations to mitigate geopolitical situations, the Indian landscape presents a good opportunity for them. In the field of critical technologies, geopolitics and dynamic policymaking are the two cornerstones of any venture that leads to strategic results.
It takes time to set up mass production supply chains, with both scale and geographic concentration driving prices. In addition to Ukraine and Russia as the largest producers and sellers of neon, China is also emerging as an important player. A tremendous amount of work has been done in China in recent years to increase production of neo, as well as xenon and krypton.
Does neon represent a strategic opportunity for India in semiconductors? The answer is unmistakably affirmative.
(The author is an ex-colonel and policy specialist in semiconductors and critical electronics. Opinions are personal.)
