Semiconductor global supply chains are not only complex but also pivotal for market access to enable a thriving manufacturing ecosystem. There is a massive scope to target at least 8-10% of the global semiconductor manufacturing supply chain by India, approximately valued at $40 billion by 2030.
The ‘Materials Market’ utilises more than 150 varieties of chemicals and more than 30 variants of gases and minerals. It is thereby pivotal to the entire process chain for any established or an aspiring semiconductor entity.
The Indian Chemical industry is statistically sixth largest in the world and third largest in Asia, contributing nearly seven percent to the National GDP. As per the available data, the market size of this industry in India is $178 billion and is expected to grow to $300 billion by 2025.
Correspondingly, Indian Steel market size is estimated to be 136 million tonnes this year and is estimated to be a huge 210 million tonnes by 2029, likely to grow at a CAGR of 9.18% in this period, as per the available data.
The chemical industry has products which need to be configured to a semiconductor grade in terms of purity and the steel industry has by-products, both of which need to be harnessed. One of the critical by-products of steel production is Neon, which is a rare gas also used in the luminescent signages that we see in the streets of major cities around the globe.
The major downstream application of neon is in lasers. The product is critical 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 mix which is critical for minimising defects in the process for a better yield of the chips. Interestingly, the three steps which involve this are availability and production of bulk neon, its purification and then its utilisation as part of the final mix. The purification process is the key and this technology exists with only a few companies–a fact that makes it difficult for diversification of existing supply chains.
More than 50% of the world’s semiconductor grade neon comes from Ukraine and the two major entities which produce it are Ingas and Cryoin. The former Soviet Union manufactured all oxygen plants for steel plants with neon, krypton and xenon capabilities to work on high-powered lasers as weapons, giving rise to a significant neon capacity. It was perhaps a response to the US Strategic Defence Initiative, commonly referred to as ‘Star Wars” in that era. Ukraine and Russia still operate these massive manufacturing plants that have long since disappeared from Western countries.
Bulk of the steel plants simply released crude neon into the atmosphere as there were no customers. This situation changed around 2012 with contraction of the steel industry worldwide and shutting down of old processes in the existing plants. The Ukraine conflict complicated these dynamics further, as nearly 70% of worldwide semiconductor demand for neon is for semiconductor lithography processes as per open-source data.
It is an age-old truism that conflicts create crises in the supply of commodities.
It is notable that neon gas prices shot up to 600% during the Crimean conflict in 2014. While pricing for Neon could be agreed on individual long-term contracts with some trade as part of spot markets, conflicts tend to send the prices flying through the roof. The concentration of supplies in war zones has an impact on the overall production metrics.
The price of neon has gone up nearly nine times since 2022, when the conflict erupted in Ukraine. With neon production impacted in Ukraine, global demand far outstrips supply. Semiconductor manufacturers are trying to find reliable supply of this noble gas to keep their facilities in operation.
As part of mitigation of the current situation, it would take more avenues of neon supply base or a probable reprogramming of lasers to change current processes which is likely to take years. In the current metrics, getting down of prices could take a little longer as well.
This provides a prudent opportunity for India with one of its many intended fabrication facilities coming up at Dholera, coupled with a mammoth steel industry. The aspect of purification could be looked at with strategic alliances but with an option to diversify global chains and not only look at India centric consumption in the future.
The policy discourse on this will require inter ministerial coordination with industry collaborations for a time-based implementation. As key players look for multiple sources and locations to de-risk geopolitical situations, the Indian landscape provides a good opportunity for them. In the arena of critical technologies, geopolitics and dynamic policy making are the two cornerstones of any endeavour which leads to strategic outcomes.
It takes time to set up supply chains for mass production with scale as well as geographic concentration being the drivers to push prices. Besides Ukraine and Russia as the biggest producers and sellers of neon, China is also emerging as a major player. Tremendous work has been done in China in the last few years to ramp up the production in neo, and also xenon and krypton.
Does neon represent a strategic opportunity for India in the overall semiconductor space? The answer is undeniably in affirmative.
(The author is an ex-Colonel and a policy specialist in semiconductors and critical electronics. Views are personal.)
