CITIC International: The triple resonance of high demand, rising costs, and geopolitical conflicts is expected to usher in an accelerated substitution window for outstanding domestic material companies.

China International Capital Corporation (CICC) released a research report stating that, based on the rapid development of downstream industries, continuous iteration of advanced technologies, and the backdrop of domestic substitution, the bank believes that the electronic materials sector is likely to continue to see promising development opportunities. 1. Benefiting from the growth in downstream demand and continuous technological advancements, the global semiconductor materials market size continues to expand, with a rapid increase in the demand for advanced materials. In various key semiconductor materials, Chinese enterprises are steadily laying out production capacity and research and development, and their competitiveness and production-sales scale are expected to continue to improve. 2. Some semiconductor materials and raw materials benefit from price increases, and with the high prosperity of downstream industries, coupled with the relatively slow expansion of overseas leaders and the impact of fluctuations in raw material supplies, Chinas semiconductor materials industry may enter a critical window period for accelerated domestic substitution. CICCs main views are as follows: The semiconductor materials industry is highly prosperous, with product prices rising across the board. Since 2026, there has been a wave of price increases in the global semiconductor materials market, with this round of price rises expanding from key chemical raw materials to encompass nearly all core categories across the manufacturing supply chain, including silicon wafers, electronic special gases, wet electronic chemicals, target materials, and packaging materials, resulting in a price uptrend across the entire industry chain. From the performance of the secondary market, the semiconductor materials sector has outperformed the market since 2026: as of July 31, 2026, the Shenwan Semiconductor Materials Index reported a cumulative increase of 47.19% within the year, outperforming the CSI 300 Index/Shenwan Electronics Index by 48.09/25.57 percentage points; the Shenwan Electronic Chemicals Index had a cumulative increase of 35.94%, outperforming the CSI 300 Index/Shenwan Electronics Index by 36.84/14.32 percentage points. Reasons for the price increases in semiconductor materials: triple resonance of high demand, rising costs, and geopolitical conflicts. Firstly, the surge in demand for AI computing power has driven the entire semiconductor industry chain's demand, leading to significant growth in the global semiconductor market size. The WSTS predicts that the global semiconductor market size is expected to reach $1.51 trillion by 2026 (up 89.9% year-on-year) and $1.91 trillion by 2027 (up 26.6% year-on-year). The demand for semiconductor materials directly benefits from the upstream expansion cycle of wafer manufacturing, and the AI wave has greatly increased the consumption of upstream materials. In 2025, the global semiconductor materials market sales are estimated at $73.2 billion (up 6.8% year-on-year), of which sales of wafer manufacturing materials are $45.8 billion (up 5.4% year-on-year) and sales of packaging materials are $27.4 billion (up 9.3% year-on-year). Moreover, events in the Middle East have impacted the global supply chain and energy costs, causing fluctuations in energy prices that have propagated to the manufacturing costs of chemical raw materials and some electronic materials, while disturbances in the Red Sea shipping route have raised international logistics costs. For instance, a global leader in silicon wafers and photoresists based in Japan has initiated this round of price increases due to cost pressures. Additionally, due to hard constraints on the supply side coupled with high demand for AI, metal prices have strengthened, leading to a collective price increase in computing metals. For example, the prices of target materials and electronic-grade hydrofluoric acid have risen due to the increased costs of chemicals, computing metals, and other raw materials; the prices of products like tungsten hexafluoride and helium have also increased due to export controls and disruptions in overseas supply. Geopolitical issues may become the core contradiction in semiconductor materials pricing; the bank believes that this round of price increase cycle is different from previous purely demand-driven ones, as certain materials exhibit characteristics of regulatory triggering - supply disruption - price surge - accelerated transmission. Chinese semiconductor materials enterprises continue to push for domestic substitution. In 2025, semiconductor materials sales in mainland China are projected to be $15.6 billion (up 12.5% year-on-year). In recent years, driven by national policy support and market demand dividends, China's semiconductor materials industry has entered a period of rapid development, with a continuing push for domestic substitution. Domestic material companies are continuously enhancing their product technology levels and R&D capabilities, gradually transitioning from breakthroughs in individual products to comprehensive support in the industry chain, with overall industry competitiveness steadily improving. As the global semiconductor supply chain increasingly localizes and diversifies, China's semiconductor materials industry is expected to face dual development opportunities from technological breakthroughs and market expansion. Furthermore, with the downstream ensuring high prosperity and the slower expansion speed of overseas leaders, along with fluctuations in raw material supply, Chinas semiconductor materials industry may enter a critical window period for accelerated domestic substitution. Risk warning. The risks of technological upgrading iterations, risks of downstream demand recovery not meeting expectations, the cyclical volatility of the global economy, international trade frictions, and risks from unforeseeable circumstances.