Dive Brief:

• Supply chain issues in the semiconductor industry could worsen, experts warn, because of disruptions to a major raw materials supplier and Russia's invasion of Ukraine.
• A 3M facility in Belgium responsible for 80% of the world's supply of coolant, an essential component of semiconductors, halted some operations last month. Major companies including Samsung Electronics, Intel and Taiwan Semiconductor Manufacturing Company rely on the plant for supplies, according to Resilinc.
• The war in Ukraine has also disrupted production of neon and argon, chemicals critical to semiconductor production. "There's going to be a massive impact on the semiconductor industry in the next quarters and years," said Thomas Foj, director of vertical markets EMEA at Avnet Silica.

Dive Insight:

Large amounts of perfluorooctane sulfonic acid, a chemical hazardous to human and animal health, were discovered in the ground near a 3M facility in Zwijndrecht, Belgium, in 2018, the Brussels Times reported. 3M was forced to halt some operations at the plant last month after the Flemish environmental agency required it cease emissions of the toxic chemicals.

The company pledged to spend 150 million euro (about $166 million) and put in place new environmental controls at the facility for air emissions, water treatment and chemical disposal.

"We are collaborative, working with the government right now to interpret the order and make sure that we can comply with the new requirements," CFO Monish Patolawala said during the J.P. Morgan Industrials Brokers Conference last month. "We have our best engineers working on it."

Disruptions to the 3M facility add another layer of supply chain woes for the semiconductor industry, which is already struggling to meet demand. The war in Ukraine injected another layer of disruption into semiconductor supply chains. 

"It’s one thing after another," said Bindiya Vakil, CEO of Resilinc. "Even if we fix the true facility problem, there's a supply chain underneath it, and that's still broken, and we don't have a good solution."

Halted production at five steel plants in Ukraine that produced a neon extract threatens another part of the chip making process, Vakil said. Russia’s invasion also jeopardized 70% of the world’s supply of argon, which is used in chip etching and is "absolutely needed for production of semiconductors," according to Foj.

The cascading supply threats come amid record demand from semiconductor customers, as they increasingly incorporate chips into phones, automobiles and appliances. And semiconductor stock levels have dropped 43% in the past two years to reach the lowest point in over a decade, according to an Avnet report.

Automakers already have tens of thousands of nearly finished cars on lots, awaiting chips, said Vanessa Miller, a litigation partner at Foley and Lardner who focuses on supply chain disputes.

"It's a new headache every day that they're dealing with," Miller said.