Huatai Securities has identified a promising profit growth opportunity within the high-purity electronic-grade hydrofluoric acid (HF) market.
Key Investment Thesis
According to data from Baichuan Yingfu, the domestic price for UP/UPS grade electronic-grade hydrofluoric acid on June 29th was 7,885/8,750 yuan per ton, representing an increase of 19%/17% since the start of the year. While rising costs for sulfuric acid and fluorite have contributed to the price increase, we believe demand-side factors, including AI-driven computing power expansion and semiconductor manufacturing upgrades, are also providing significant support. On the supply side, global effective capacity for the highest-grade G5 product remains tight and is dominated by Japanese firms. Concurrently, several domestic Chinese companies are gradually expanding their production capacity and advantages in downstream certification, indicating substantial room for increased localization rates.
AI Computing Power Fuels Semiconductor Demand
AI-driven computing demand is accelerating semiconductor manufacturing upgrades, which in turn is boosting demand for high-purity electronic-grade hydrofluoric acid. Industry forecasts suggest global capital expenditure for 300mm wafer fab equipment from 2026 to 2028 will total approximately $439 billion, driven by AI needs. In advanced process nodes, high-purity electronic-grade HF is used in wafer cleaning and etching, ranking among the top three wet electronic chemicals by usage volume. Its purity and stability directly impact chip manufacturing yield limits. As processes advance to 3nm/2nm, the number of etching layers increases, significantly raising demand for ultra-high-purity G5-grade product. In the memory sector, forecasts indicate the supply of High Bandwidth Memory (HBM) will see a compound annual growth rate of 45% from 2023 to 2028, with the capacity per HBM stack projected to rise from about 187GB in 2025 to approximately 464GB by 2030. Combined with memory production expansion, this further amplifies the demand elasticity for high-end consumables. We believe the semiconductor manufacturing upgrade cycle, driven by AI computing power, provides robust support for high-purity electronic-grade HF demand.
Tight Global Supply for High-Grade Product
A tight global supply-demand balance is a key factor supporting the price increase for high-purity electronic-grade HF. The global market for high-end G5 electronic-grade hydrofluoric acid has long been dominated by Japanese companies such as Stella Chemifa and Morita Chemical. These leading firms' main production facilities have long service histories, and their willingness to expand capacity is limited, constraining global high-end supply growth. Reports indicate that approximately 90% of the anhydrous hydrofluoric acid used by South Korean semiconductor material companies is imported from China. Recently, South Korean firms have been compelled to make large-scale purchases from China at elevated prices, further highlighting the supply tightness for high-end electronic-grade products. Domestically in China, while several companies have achieved mass production of G5-grade product, high-end capacity still struggles to meet rapidly growing semiconductor demand. We anticipate the supply-demand balance for high-end G5-grade product will likely remain tight in the near to medium term.
Strong Domestic Demand and Substitution Potential
G5-grade electronic-grade hydrofluoric acid, used in applications like wafer cleaning and wet etching, faces the highest degree of scarcity and production barriers. Industry forecasts suggest that by 2028, mainland China's 12-inch wafer fab capacity could exceed 3.5 million wafers per month. Assuming a consumption of 2.5-3kg of electronic-grade HF per wafer, annual demand from mainland fabs could reach 100,000-120,000 tons by 2028. If G5-grade product constitutes 40-50% of this, demand for G5-grade HF would be 50,000-60,000 tons annually, representing a 30-50% increase from 2025 levels. By the end of 2025, China's effective domestic capacity for G5-grade HF is estimated at 70,000-100,000 tons per year. We believe the large-scale substitution of domestic electronic-grade hydrofluoric acid in high-end wafer manufacturing is poised to accelerate. Investors are advised to focus on the profit growth opportunities arising from both volume and price increases for domestically produced G5-grade hydrofluoric acid.
Investment Risks to Consider
Key risks include semiconductor capital expenditure falling short of expectations, slower-than-anticipated progress in domestic product certification, and a rapid deterioration in the supply landscape.
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