According to a research report from China Merchants Securities Co.,Ltd., the current electronic fabric market is experiencing a high-growth cycle driven jointly by "explosive demand from the AI industry" and "orderly supply." The market's focus has shifted from the initial phase of "shortage-driven price hikes" to questioning "whether the price increases can exceed expectations and how long the favorable conditions will last," which respectively determine corporate EPS and valuations. The electronic fabric sector still has room for growth, with the primary driver expected to transition from valuation expansion to earnings growth, emphasizing the realization of profits. This fiberglass market cycle is propelled by the surge in AI computing power demand and the strategic capacity redirection by leading producers, resulting in simultaneous price increases for both mid-to-high-end and standard electronic fabrics. Key points from the CMSC report are as follows:
Review of the 2020-2022 Electronic Fabric Cycle
Demand led the way, followed by supply response. Product prices determined profit expectations, with valuations leading the move. Starting from September 2020, improved downstream integrated circuit (IC) conditions drove up prices for electronic yarn and 7628 electronic fabric. From September 2020 to July 2021, G75 electronic yarn prices rose from RMB 7,950/ton to RMB 17,000/ton, a 113.8% increase, while the market price for 7628 electronic fabric climbed from RMB 3.35/meter to RMB 8.78/meter, a 162.1% gain. Subsequently, demand growth weakened marginally, coinciding with the release of new electronic yarn capacity, leading prices to plateau at high levels for about three months before entering a decline. On the supply side, domestic electronic yarn capacity increased from 862,000 tons/year in September 2020 to 1.132 million tons/year by June 2022, an addition of 270,000 tons/year, representing a 31.3% growth. At the individual stock level, share prices of Kingboard Laminates Holdings Ltd., Taiwan Glass Ind. Corp., and Fu-Chiang Technology showed stronger synchronization with the electronic fabric chain's performance. In contrast, China Jushi Co., Ltd. and Sinoma Science & Technology Co., Ltd., due to their higher proportion of composite businesses like coarse yarn and wind turbine yarn, exhibited relatively weaker stock price correlation with electronic fabric prices.
Core Drivers of the Current Cycle
The core driver of this cycle stems from the "capacity squeeze" for standard 7628 electronic fabric and the "widening supply-demand gap" for high-end electronic fabric, both resulting from the "siphoning effect of AI demand." The explosion in AI computing power has spurred demand for high-end electronic fabric, prompting industry leaders to proactively adjust capacity by shifting production to thinner fabrics like 1080/2116 and specialty electronic fabrics such as Low-DK/Low-CTE. Consequently, compared to the previous cycle's logic of simultaneous volume and price increases driven by high IC production and sales growth, this round of 7628 fabric price hikes is distinctly characterized by supply contraction. The reduction in supply of standard fabric due to the diversion of capacity to high-end production forms the fundamental logic supporting the sustained price increase for 7628 fabric. Price-wise, from June 30, 2025, to July 1, 2026, G75 electronic yarn prices rose from RMB 8,950/ton to RMB 16,850/ton, an 88.3% increase. From June 30, 2025, to July 3, 2026, the market price for 7628 electronic fabric climbed from RMB 4.20/meter to RMB 8.55/meter, a 103.6% gain. The market has already priced in the electronic yarn/fabric price increases and the upstream AI sector's strength. The brokerage believes the current price uptrend is not over in the short term, with the supply-demand dynamic supporting continued price strength for electronic yarn/fabric. However, medium-to-long-term excess returns will ultimately depend on the extent of profit realization by companies.
Outlook for the Market
Reviewing the previous cycle, product prices closely matched the supply-demand gap, confirming commodity pricing logic. Mapping this to the current cycle, the fiberglass industry remains in an upward trajectory. The demand gap for high-end electronic fabric remains unfilled, demand for standard electronic fabric shows resilience, short-term supply increments are limited, and a price inflection point is not yet in sight. Furthermore, in the last cycle, the second derivative of electronic yarn/fabric prices (the acceleration of price increases) peaked first, leading the stock price inflection point by about one month. The market began pricing in weakening profit margins when the rate of price increases slowed, while the actual decline in spot prices served as a lagging confirmation signal of the profit cycle peak. In the current cycle, however, the month-on-month price increase magnitude for electronic yarn/fabric is still expanding, the second derivative remains positive, and the momentum for price hikes shows no sign of inflection. Sector valuations have reflected market expectations. Subsequent stock price drivers may shift from valuation expansion to earnings delivery, requiring monitoring across three dimensions: the transmission of price increases, the pace of capacity deployment, and the realization of reported profits.
Valuation Assessment
Historically, the fiberglass industry was tied to consumer goods, real estate, and traditional electronics, experiencing significant profit volatility, with P/E valuation centers generally in the 10-15x range. Today, the core demand growth drivers have shifted to high-end electronic fabric demand fueled by AI computing power and advanced packaging, enhancing the industry's growth attributes. As leading electronic fabric companies continue to expand high-end capacity and increase the proportion of high-margin AI-related products, profit stability and growth potential are expected to improve. The brokerage believes that, under a baseline scenario of sustained high demand from AI computing power and an industry supply-demand gap that cannot be substantially alleviated in 2026-2027, the valuation levels of leading fiberglass companies are likely to rise.
Risk Factors
Potential risks include weaker-than-expected demand from AI computing power and the electronics industry chain, sales volumes and prices falling short of expectations, significant increases in raw material and fuel costs, overly rapid release of new production capacity, slow progress in high-end product development or customer certification, and the inherent limitations of using historical experience as a reference.
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