War in Ukraine Could Cause Neon and Palladium Shortages

As you’d expect, the war in Ukraine is causing a ton of industrial side effects, possibly igniting its own mini supply chain crisis.

The noble gas neon is vital for gas-phase lasers used to manufacture semiconductors, and apparently, Ukraine (the largest neon producer in the world) provides the U.S. with 90% of its semiconductor-grade neon.

Neon is mainly used in lighting, while the gas benefits excimer lasers, plasma displays, light bulbs, neon signs, and R and D laboratories. For the gaseous form, 56% of the market is neon lamps, 15% is the laser industry, 15% is the refrigerant industry, 10% is the medical field, with 4% in other industries.

According to Market Watch, neon gas is (or perhaps was) expected to move at a compound annual growth rate (CAGR) of 4.3% over the next five years, reaching 48 million USD in 2024 (from 37 million USD in 2019).

Course, two of the hardest factors to plan for are “acts of god” and war, and the latter is having a devastating corollary impact on the market.

And neon isn’t the only market casualty of the war.

Russia produced 2.6 million troy ounces of palladium in 2021 (40% of global production), providing a third of the palladium metal used in U.S. sensors and memory products.

And, well, here’s a recent quote from TD Securities’ Bart Melek – “if we see a set of sanctions that reduce financing and free flow of the material to the rest of the world, we could see a significant tightening of conditions for palladium probably in the not too distant future.”

I’m not saying we shouldn’t apply an economic stranglehold on Russia – just pointing out some of the unfortunate side effects of war and murky geopolitical relations.

Thus far, palladium has jumped 54% from $1,617/oz on December 15th to $2,492/oz on February 23rd.

The market is responding in its own dispassionate way, unfortunately.