Foreword:

Electronic fabric, traditionally viewed as a chemical cyclic product, is experiencing a significant transformation amidst the AI computing power surge. It has now become a critical bottleneck, constraining the expansion of the entire computing power industry chain.

As prices rise, the profit distribution within the AI industry chain is shifting from terminal manufacturing to upstream core materials.

Author | Fang Wensan

Image Source | Internet

Price Hikes in Electronic Fabric Highlight Fundamental Constraints of AI Hardware

Electronic fabric, also known as electronic-grade fiberglass cloth, is woven from ultra-fine electronic-grade fiberglass yarns. It serves as a crucial base material for copper-clad laminates (CCLs).

In the era of traditional electronics, devices like mobile phones, computers, home appliances, and general communication equipment had specific requirements for PCB performance. However, most needs centered around scale, cost, and a stable supply.

In contrast, AI servers demand high-speed interconnectivity, complex power supply, dense heat dissipation, multi-layer circuits, switching networks, and massive data throughput.

The higher the signal speed, the more stringent the requirements for the PCB base material's dielectric constant, dissipation factor, coefficient of thermal expansion, and surface smoothness.

Copper-clad laminates are further processed into printed circuit boards (PCBs), which ultimately support circuit connections in servers, switches, smartphones, and communication devices.

Every high-speed signal transmission and every stable operation of high-multi-layer PCBs in AI servers relies on this extremely thin, stable, and difficult-to-produce material.

Prices for high-end low-dielectric and quartz fabrics have surged even more dramatically, with some categories exceeding 200 yuan/meter and order backlogs stretching up to nine months.

By early June 2026, commonly used electronic fabrics had undergone five rounds of price increases within the year, reaching an average price of 7.4 yuan/meter, up 100% from the low point in the third quarter of 2025.

Behind the price hikes in electronic fabric lies a reallocation of AI industry chain profits toward materials, processes, and capacity bottlenecks.

This is the most noteworthy aspect of the current price surge: the demand-side increase is not merely in quantity but in an overall upgrade of material grades.

While thick conventional fabrics still have a market, AI servers, high-speed switches, optical modules, and advanced packaging substrates are driving demand for low-dielectric, low-loss, low-thermal-expansion, ultra-thin, and extremely thin electronic fabrics.

As high-end capacity is snapped up, the supply of ordinary fabrics is also squeezed, causing price increases to spill over from high-end to conventional varieties.

Moreover, electronic fabric production requires electronic-grade fiberglass yarn, followed by warping, sizing, weaving, and post-treatment processes.

Thinner fabrics with lower dielectric constants and thermal expansion coefficients pose greater process challenges.

While ordinary capacity can be adjusted through production shifts, truly suitable high-end electronic fabrics for AI servers and advanced packaging require expansion cycles far longer than the price increase cycle.

China Jushi's Huai'an plant, with an annual capacity of 100,000 tons of electronic fiberglass and 390 million meters of electronic fabric, has been a key player. This production line accounts for 9% of the global market and is one of the world's largest single electronic fiberglass lines.

China Jushi holds approximately 23% of the global electronic fiberglass market share, and its capacity will further rise to about 28% post-expansion.

Subsequently, China Jushi announced plans to build another production line in Huai'an with an annual capacity of 50,000 tons of electronic yarn and 320 million meters of electronic fabric, involving a total investment of 4.431 billion yuan and a construction period of 1.5 years.

In 2025, China Jushi achieved revenue of 18.881 billion yuan, up 19.08% year-on-year; net profit attributable to shareholders was 3.285 billion yuan, up 34.38% year-on-year. Electronic fabric sales reached 1.062 billion meters, while roving and product sales hit 3.2026 million tons, both setting new records.

This growth is not accidental for a single company but results from the combined effects of recovery in the fiberglass industry and AI demand.

The CCL segment also benefits from high-endization. Shengyi Technology's 2025 annual report shows revenue from CCL and bonding sheet businesses at 17.774 billion yuan, up 20.17% year-on-year, with a gross margin of 23.91%. Revenue from printed circuit board businesses reached 9.144 billion yuan, up 103.93% year-on-year.

AI server demand amplifies high-end PCB needs, which in turn drive high-grade CCLs. High-grade CCLs compete for key materials like electronic fabric, copper foil, and resin, with material bottlenecks enhancing upstream bargaining power.

As server internal signal transmission rates jump from 25Gbps to 112Gbps, with the next-generation Rubin architecture targeting 224Gbps, ordinary E-grade fiberglass cloth can no longer meet high-speed signal transmission requirements, forcing an industry-wide upgrade to low-dielectric, low-thermal-expansion specialty electronic fabrics.

The industry has now formed clear product tiers:

① Ordinary E-grade fabric suits consumer electronics and mid-to-low-end servers, accounting for about 70% of the market.

② Low-Dk low-dielectric fabric is used in 5G equipment and mid-to-high-end servers.

③ Quartz Q fabric, the performance ceiling with silica purity exceeding 99.95% and extremely low dielectric loss, has become standard for NVIDIA's high-end AI servers and 1.6T optical modules.

High-end categories face extremely high technical barriers, with only a handful of global manufacturers capable of stable mass production, creating a much larger supply-demand gap than ordinary categories.

Domestic Substitution Seeks Breakthroughs Amid Hard Constraints

The supercycle in the electronic fabric industry has opened a rare window for domestic substitution.

The high-end electronic fabric market is highly monopolized, with Nitto Denko controlling 59% of the global Low-Dk market and Asahi Kasei holding 18%, together accounting for over 80%.

Nitto Denko's new capacity additions in 2026 will only increase by 10% to 20%, with expansions in Fukushima and other locations not expected to reach mass production until the second half of 2027.

NVIDIA CEO Jensen Huang recently visited Nitto Denko in Japan, Apple has stationed personnel in Japan for negotiations, and Qualcomm is breaking traditional supply chain hierarchies to seek alternative resources.

However, breakthroughs in domestic substitution are occurring at several critical nodes.

In the ultra-thin fabric segment, Honghe Technology has achieved the world's only mass production of 4μm ultra-thin fabric, breaking Japan's monopoly and capturing over 26% market share, with products dual-certified by NVIDIA and TSMC.

In the quartz fabric segment, Philly Quartz is the only domestic enterprise with a fully independent "high-purity quartz sand → quartz fiber → quartz fabric" supply chain, serving as NVIDIA's sole certified domestic supplier for M9-grade Q fabric, with capacity planned to expand from 1 million square meters to 10 million square meters in 2026.

In the low-dielectric fabric segment, Sinoma Science & Technology is the only domestic company covering the full spectrum of Low-Dk first-generation, second-generation, and Q fabrics. After its 35 million-meter specialty fiberglass fabric project commences production in 2026, it will directly challenge Nitto Denko's monopoly.

More strategically significant is the localization of weaving machine equipment. High-end weaving machines have long been monopolized by Japan's Toyota, but Trützschler Smart has acquired mature technology through a wholly-owned acquisition of Germany's Volkmann.

Its VGT-9 loom has passed mass production verification by leading clients such as China Jushi and International Composite Materials, with a delivery cycle of just 6 to 9 months, significantly shorter than Japan's 18 to 24 months.

Titan Textile Machinery's self-developed TT-8001 air-jet loom competes with Toyota's JAT910, featuring a self-developed oil-cooled direct-drive + independent servo tension system that controls tension fluctuations within ±2%.

When Japanese equipment lead times extend to 2029 and global tech giants engage in diplomatic-level competition for a single fabric, any progress in domestic substitution holds strategic value beyond mere commercial implications.

Pricing Power Shifts: Reallocation of Industry Chain Profits

Citigroup Securities explicitly noted in a recent research report that the profit centers within the AI industry chain are shifting, with the fastest-growing capacity segments having the weakest pricing power, while the slowest-expanding capacity segments wield the strongest pricing power.

Viewed from downstream to upstream, PCB manufacturing has seen the most aggressive capacity expansions, with numerous manufacturers entering the AI server-related production space.

However, under intense competition, PCB manufacturers' price hikes are largely cost-pass-through in nature. While most raw material cost pressures can be transferred downstream, their own profit margin improvements remain relatively limited.

Industry data shows that during this price hike cycle, PCB prices have risen about 40%, significantly less than the increases in upstream materials.

The midstream CCL segment faces greater tightness. CCL manufacturers' capacity growth of around 20% lags behind downstream PCB expansion, sustaining a tight supply-demand balance.

Prices for ordinary FR4 CCLs have doubled from 110-120 yuan/sheet in 2025 to 200-220 yuan/sheet currently.

Supply of high-end high-speed CCLs is even tighter, with some customers already locking in 2027 capacity in advance.

Tracing further upstream to the electronic fabric segment reveals the industry's most rigid supply and strongest pricing power.

As computing power construction enters large-scale deployment, the most fundamental raw materials have become new constraints, naturally shifting profits and pricing power toward bottleneck segments.

Conclusion:

When even a "fabric" can command industry-wide attention through price hikes, it shows that AI's heat has penetrated beyond chips into the most foundational industrial material layers.

Future enterprises that truly capture AI's long-term dividends may not all stand center stage at product launches. Many opportunities lie hidden within servers—in materials so thin they're nearly invisible yet determine whether systems can operate stably.

Partial reference sources: Business Society: "Electronic Fabric Prices Continue to Rise, High-End Category Shortages Widen Further," Guangfa Securities Research: "In-Depth Report on Electronic Fiberglass Industry: AI Drives Demand Upgrades, High-End Electronic Fabric Enters Boom Cycle," CCTV Finance: "Five Rounds of Price Increases This Year! Electronic Fabric Prices Surge," Jiuyan Community: "Hardcore! Electronic Fabric Prices Rise All Year Without Relief," TMTPost APP: "AI Computing Power Explodes, Electronic Fiberglass Fabric Becomes Supply Bottleneck for Computing Hardware"