This tiny North Carolina mining town is crucial to the semiconductor industry. Helene just wrecked it.

By Hannah Erin Lang

Closures from storm damage could lead to supply-chain bottlenecks - and price increases - for the chips used in AI, smartphones and cars

A tiny mining town in western North Carolina was among those battered by Hurricane Helene - and the damage could have serious implications for the massive tech-industry supply chain that relies on it.

The mines in Spruce Pine, N.C., about an hour outside of Asheville, produce a unique kind of high-purity quartz used in semiconductor manufacturing. The town is the only place in the world where the uniquely high-quality mineral can be found in such large quantities and produced for such a low price.

The two companies that operate the mines in Spruce Pine said they've shut down local facilities as widespread flooding, power and communications outages plague Appalachia in the wake of the storm.

"Hurricane Helene has had a significant impact on North Carolina, and the Spruce Pine community has been hit particularly hard," Sibelco, a Belgium-based company that operates in Spruce Pine, told MarketWatch in a statement. "The hurricane has caused widespread flooding, power outages, communication disruptions, and damage to critical infrastructure in the area."

"Many people in the area, including our employees and their families, are facing displacement and significant disruptions," the company said, adding that the safety of employees remains "top priority."

'You're talking about the southern Appalachian mountains, with a lot of unique geological features. Economically, this deposit is one of the most important on earth.'Yinan Wang, geologist

The Quartz Corp., a Norway-based company and the other major supplier in the region, said in an announcement Tuesday that it is facing "multiple challenges" related to flooding and downed power lines. Both Sibelco and TQC ceased local operations on Sept. 26 in preparation for severe weather.

"We have no visibility on when they will restart," TQC said.

Repairs at the facilities and in the town could lead to supply-chain bottlenecks and temporary price increases on chips and electronics, sources told MarketWatch, particularly since the material sourced in Spruce Pine is so difficult to find across the globe.

"You're talking about the southern Appalachian mountains, with a lot of unique geological features," geologist Yinan Wang said. "Economically, this deposit is one of the most important on Earth."

The mine's closure could bring an additional economic burden to a small Southern town already reeling from a once-in-a-generation natural disaster. Spruce Pine has a population of just over 2,000 and a poverty rate nearly double that of the national average. Sibelco and The Quartz Corp are two of the area's largest employers, with hundreds of workers across the county.

The sole source of a crucial chip ingredient

It isn't uncommon for one of the many ingredients in the semiconductor-manufacturing process to be primarily sourced from just one geographic location, said Peter Hanbury, a partner at Bain & Co. with expertise in semiconductor manufacturing.

But even among such places, Spruce Pine stands out.

"In this case, with 80 to 90 percent [of the global supply] coming from this one location, there's not a lot of great other backup plans," Hanbury said.

The ultra-pure quartz plays a crucial role in the production of semiconductors, which act as the brains of microchip-powered devices, including smartphones and computers but also gaming consoles, cars and medical devices. Semiconductors also play a vital role in artificial-intelligence technology.

One manager at the Quartz Corp once told the BBC that "inside nearly every cellphone and computer chip, you'll find quartz from Spruce Pine."

With internet and power lines wiped out in much of the region, the North Carolina Department of Environmental Quality has not yet been able to assess if or how extensively the mines have been damaged, according to public-information officer Kat Russel.

Helene dumped 24.12 inches of rain on Spruce Pine over a three-day period, according to CoCoRaHS, a nonprofit nationwide network of weather observers. As of Monday evening, nearly 40% of homes and businesses were without power in Mitchell County, where Spruce Pine is located, and many roads were impassable, state news outlets reported.

Read more: Scope of devastation revealed in North Carolina as Helene's death toll tops 130

Another chip shortage?

If facilities are flooded or waterlogged, it could take a while to get quartz production back on track, sources told MarketWatch.

"People I talk to in the industry are nervous that this is something that is going to last for months," said Ed Conway, author of "Material World: The Six Raw Materials That Shape Modern Civilization." "If the facility itself is flooded, then starting that up again is not a quick process."

Consumers and businesses can expect higher prices for computer chips and electronics, at least temporarily, said Dan Hutcheson, vice chair at TechInsights, an information platform for the semiconductor industry.

That being said, "our industry is used to these major disruptions," he added. "But it's not easy - you can bet that every supply-chain manager in the industry worked through the weekend on this one."

Suppliers and manufacturers tend to keep several months' worth of quartz inventory on hand just in case of crises like these, Hanbury added - so it also could take months before a bottleneck becomes evident.

"If we see it takes six to nine months to get production back up, then we think there's a risk," he said.

There just aren't many viable, naturally occuring alternatives to the quartz you can find in Spruce Pine, Hanbury said.

-Hannah Erin Lang

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10-02-24 1133ET

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