The U.S. has taken numerous steps to promote the domestic semiconductor industry, but there are major risks arising from gaps in the way specialty chemicals and gases are looked at that have created major chokepoints that could, individually or collectively, bring the entire industry to its knees. We discuss those risks that are specific to the specialty chemicals and gases segment of the semiconductor industry.
The first risk is a capacity shortfall. As the U.S. celebrates the announcement of different chip fabs constructed on U.S. soil in Texas, Ohio, Arizona and other states, little investment has gone into onshoring the production of specialty gases like germane gases, noble gases and fluorinated gases that are critical in semiconductor manufacturing during processes like printing, etching, and implanting.
As chip manufacturing accelerates, the demand for these specialty chemicals and gases could outstrip available supplies, causing production to grind to a halt.
Fragility at a single node presents another risk. Most specialty chemicals and gases used in the semiconductor industry are imported, and the number of facilities that make these inputs is limited. A failure at a production plant could strike global supply hard, as was the case when an explosion at a plant in Japan led to extended downtime at a facility producing nitrogen trifluoride gas in August last year.
Export controls imposed on the raw materials used to make specialty chemicals and gases needed by the semiconductor industry present another major risk. For example, China imposed restrictions on exports of germanium feedstock needed to produce germane gases in 2024, before a truce was negotiated between Washington and Beijing and the ban was lifted last year. Given that China dominates mining and processing of these upstream raw materials, the U.S. semiconductor industry faces a major vulnerability in this area.
Regulatory pressure presents another huge risk. Several specialty gases are “forever chemicals” or very potent greenhouse gases, and the stringent regulations governing them make it hard to produce them on U.S. soil and in Europe. This means that America will have to continue depending on importation of these inputs, a situation that makes the semiconductor industry vulnerable to supply shocks.
A lot of money has been channeled by laws like the CHIPS Act into semiconductor manufacturing, but very little has gone into funding upstream essentials like the mining of the raw materials needed to make specialty chemicals and gases or the production of the ready-to-use specialty chemicals and gases that are critical in semiconductor manufacturing.
Major U.S. semiconductor companies like NVIDIA Corp. (NASDAQ: NVDA) are most likely aware of these risks, but may be shielded to a certain extent since they rely on foreign contract manufacturers to produce their semiconductors.
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