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A semiconductor production facility in Korea (Hankyoreh file photo)

South Korea’s semiconductor companies are on edge over the increasingly serious situation in Ukraine, where Russian President Vladimir Putin has decided to deploy troops.

Their concerns stem from the fact that Russia and Ukraine supply many of the raw materials used in the industry.

According to an examination of Korea International Trade Association figures on Tuesday, trade between South Korea and Ukraine amounted to only around US$900 million annually as of 2021, with Ukraine ranked 68th among South Korea’s trading partners.

But South Korea imports up to around 50% of necessary semiconductor process materials such as neon, krypton, and xenon from Ukraine and Russia. For this reason, some have voiced concerns that the Ukraine situation could lead to production issues for Samsung Electronics, SK Hynix, and other South Korean semiconductor companies if it escalates into warfare.

Last year, South Korea imported 23.0% of its neon from Ukraine and 5.3% from Russia. A noble gas present in the air at a concentration of 0.00182%, neon is one of the raw materials in excimer laser gases, which are used in the photolithography process in which circuits are etched onto silicon wafers.

Last month, POSCO finished construction on South Korea’s first neon production infrastructure at its Gwangyang Works oxygen plant and began shipping its product, anticipating the ability to meet around 16% of domestic demand by the second half of the year.

But the project is still in its early stages, and it is unlikely to be able to substitute for setbacks that arise in imports from Ukraine.

At 30.7%, Ukraine was also South Korea’s biggest import source last year for krypton, which is used in the semiconductor etching process (the removal of portions besides the circuit pattern). If Russia (17.5%) is also factored in, the two countries account for roughly 50% of the krypton imported by South Korean semiconductor companies.

South Korea was also found to have respectively relied on Ukraine and Russia for 17.8% and 9.2% of xenon gas imports last year.

The semiconductors business said the immediate impact of the Ukraine situation would be limited, noting that they had been working to diversify their supply chains in the wake of the restrictions imposed by Japan on exports of major semiconductor materials in 2019.

Meeting with reporters on a Feb. 16 roundtable on semiconductor investment promotion organized by the Ministry of Trade, Industry and Energy, SK Hynix President and CEO Lee Seok-hee stressed that his company “has established a large [stockpile].”

“We’ve been preparing well, so people shouldn’t be too concerned,” he added.

But the mood in the market suggested that it was too soon for reassurances.

In a report published Monday, NH Investment & Securities analyst Doh Hyun-woo noted, “During the war in Ukraine between 2014 and 2015, the price of neon gas for semiconductor production rose more than tenfold to US$3,500 per cubic meter.” On this basis, he predicted that the conflict between Ukraine and Russia could have an impact on the supplies of semiconductor materials.

By Sun Dam-eun, staff reporter

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