Economic Observer reporter Zheng Chenye

In early September, China Jushi (600176. SH), a leading domestic electronic fabric company, once again raised the price of electronic fabric, with thick fabric rising by 15% and thin fabric rising by 20%. Copper clad laminate leader Jiantao laminated board (01888. HK) has issued seven price increase letters within the year, with FR-4 copper clad laminate (one of the most commonly used grades of copper clad laminate substrate) experiencing a cumulative increase of over 100%.

Leslie Cheung, Chairman of Jiantao Group (00148.HK, the controlling shareholder of Jiantao laminated board), said at the group's mid-term performance conference that as soon as electronic fabric is available, prices have to be increased, and even the group's own production of copper-clad laminates is insufficient. "We expect to have no worries about business in the next two to three years.

Since the beginning of this year, the stock prices of electronic fabric concept stocks in the A-share market have risen significantly. The stock price of Honghe Technology (603256. SH) has risen more than seven times this year, the stock price of International Composite Materials (301526. SZ) has risen more than six times this year, the stock price of China Jushi has risen more than three times this year, and the stock price of Sinoma Technology (002080. SZ) has also risen more than 170% this year. In the first half of 2026, the net profit attributable to the parent company of all four companies achieved year-on-year growth. Honghe Technology's net profit attributable to the parent company increased by 334% year-on-year, International Composite Materials' net profit attributable to the parent company increased by 177% year-on-year, China Jushi's net profit attributable to the parent company increased by 74% year-on-year, and Sinoma Technology's net profit attributable to the parent company increased by 21% year-on-year.

Electronic cloth is an industrial fabric woven from extremely fine glass fiber yarn, which is the skeleton material of copper-clad laminate (CCL). After processing, the CCL becomes a printed circuit board (PCB). From smartphones, cars to AI servers, almost all electronic devices require PCBs. Electronic fabric accounts for a very small proportion of the cost of terminal products, but its price fluctuations will propagate and amplify layer by layer along the chain of "electronic fabric copper-clad board PCB terminal equipment".

The last round of electronic fabric price increases started in September 2020. Taking the 7628 specification (the most widely used basic variety in electronic fabric) as an example, public market data shows that its price has risen from 3.35 yuan/meter to 8.78 yuan/meter around September 2021, followed by concentrated release of new production capacity, and fell back to 3.3 yuan/meter by the end of 2022.

The current round of electronic fabric price increases will start from the fourth quarter of 2025, with 7628 fabrics rising from 3.8 yuan/meter to 11.8 yuan/meter in early September, exceeding the peak of the previous round by more than 30%. The thinner varieties 1080 cloth and 2116 cloth have seen a greater increase, with cumulative increases reaching 290% and 280% respectively, and are still expanding.

Multiple interviewees told reporters that there is no sign of significant relief on the supply side in the industry in the short term.

Triple Shortage

The market usually attributes the shortage of electronic fabric supply to a shortage of weaving machines, but many industry insiders believe that this attribution is too simplistic when interviewed by reporters.

Su Wanyi, Managing Director of Wanchuang Investment Bank, told Economic Observer reporters that the current shortage of electronic fabrics is a combination of three constraints, and attributing it solely to any link will misjudge the turning point. The triple constraints she mentioned refer to the doubling of demand side AI server usage, the shortage of midstream electronic yarn raw materials, and the production capacity of weaving machines being stuck by Toyota in Japan.

Once the industry prosperity is attributed to a single link, it means that you cannot see the turning point or the risk clearly, "said Su Wanyi.

Among the three constraints mentioned above, the first one comes from the demand side. The number of PCB layers in current AI servers has increased from the traditional 8 to 14 layers to 20 to 78 layers, and each layer requires electronic fabric as a skeleton. Therefore, the amount of electronic fabric used in a single AI server is 3 to 8 times that of traditional servers.

Morgan Stanley stated in a material cost breakdown report released in May 2026 that the PCB value of Nvidia's Rubin architecture single cabinet increased by 233% compared to the previous generation, ranking first among all components in terms of growth rate. Su Wanyi believes that the pull of AI on electronic fabrics is not a cyclical fluctuation, and the demand center has been permanently elevated.

The demand upgrade has directly widened the profit gap between different products. Electronic fabrics can be roughly divided into two categories based on performance levels: ordinary fabrics, represented by the 7628 specification, are widely used in PCBs for consumer electronic products such as mobile phones, cars, and home appliances. These numbers (such as 7628) are codes for yarn arrangement density, and the smaller the number, the thinner the fabric. 2116 and 1080 are thinner varieties, and thin fabrics can meet the design requirements of more layers and denser wiring, with correspondingly higher prices; Special electronic fabric is a variety specially developed for equipment such as AI servers and high-speed switches that require extremely high signal transmission performance. It mainly includes low dielectric fabric (reducing signal loss during transmission), low thermal expansion coefficient fabric (improving the dimensional stability of circuit boards at high temperatures), and quartz fabric (used in the highest end ultra-high frequency application scenarios).

The technical barriers and customer certification barriers between these varieties are increasing step by step, and the prices are also rising step by step. For example, the current price of ordinary 7628 fabric is 11.8 yuan/meter, the price of low dielectric second-generation fabric is 160 yuan/meter, and the price of quartz fabric is 250 to 400 yuan/meter. The price difference within the same category exceeds twenty times.

This profit gap drives fabric factories to prioritize weaving machines and production capacity towards the production of specialty fabrics, further squeezing the supply of ordinary fabrics.

Honghe Technology, which specializes in electronic fabrics, reported a net profit of 379 million yuan to its parent company in the first half of 2026, a year-on-year increase of 334%. The proportion of special electronic fabric revenue increased from 16% at the beginning of the year to 35%, and the gross profit margin increased from 31% in the same period last year to 59.5%. The management of the company stated in the performance exchange on August 14th that they will proactively cut off the production of low gross profit ordinary fabrics this year and focus on making special fabrics.

As a comparison, during the same period, Changhai Shares (300196. SZ), which mainly deals in ordinary fiberglass yarn and does not involve electronic grade products, saw a year-on-year decrease of 10% in net profit attributable to the parent company.

The second constraint is on the raw material side: the supply of electronic yarn, the raw material for electronic cloth, is also tightening.

Su Wanyi told reporters that it takes more than two years for the new electronic yarn kiln to reach full production from project approval. By 2026, there will be very little new production capacity in China, and some manufacturers are already "empty". Small and medium-sized factories can only receive 60% of the demand for goods.

Mr. Liang, the market manager of an electronic fabric manufacturer in East China, told reporters that China's Jushi and Jiantao have significantly expanded their production of electronic fabrics this year. Firstly, they have reserved electronic yarn for their own looms, and the amount of yarn exported to the market is decreasing. Shandong Guangyuan and other special yarn manufacturers are also shifting from ordinary varieties to higher profit high-end yarns. He also mentioned that some companies in Inner Mongolia have tried to trial produce electronic yarn using the dry pot method (a process that uses small-scale melting furnaces to draw yarn). Although the cost is high, there is still room for gross profit at the current profit level. However, the production is limited and will not have an impact on the mainstream market in the short term.

The third constraint is on the device side.

Mr. Liang told reporters that to his knowledge, the new orders for Toyota looms are currently scheduled for over two years, until around 2029. The Toyota he referred to was Toyota Industries (6201. T), founded in 1926 and the parent company of Toyota automobiles. Multiple interviewees told reporters that the weaving of high-end electronic fabrics requires the use of jet looms, and the Toyota JAT910 series (Toyota's main high-end electronic fabric weaving machine) holds more than 90% of the global market share, and there is still no substitute of the same level.

In fact, the gap between domestic weaving machines and Toyota is not only reflected in queuing time. Su Wanyi told reporters that high-end electronic fabrics require looms not to be faster but more stable, with a continuous operation yield of over 98%. Electronic fabric factories value certainty when purchasing looms.

Feng Hao, an engineer from a PCB manufacturer in Shenzhen, also mentioned that the core gap between Toyota looms and domestic equipment lies in tension control. The tension fluctuation of Toyota looms can be controlled within plus or minus 0.1 grams per yarn, while domestic equipment is currently around plus or minus 0.3 grams. The problem of making thick fabrics is not significant, but the yield of making thin and ultra-thin fabrics will significantly decrease.

Yang Guoming, the general manager of China Jushi, also stated at the performance briefing on August 21 that the company's electronic fabric production line uses imported weaving machines, and "good products must use good equipment".

In terms of domestic weaving machines, public information shows that Zhejiang Wanli Textile Machinery has been launched in bulk in June 2026, with a monthly production capacity of about 400 units, but it is still in the stage of customer verification and import; Shandong Rifa Textile Machinery has been able to provide bulk supply of specifications such as 7628 and 2116, but there is still a long way to go before mass verification of high-end thin fabrics.

International Composite Materials disclosed at an investor relations event on August 20th that the company has purchased a domestically produced weaving machine for installation and debugging. At the same time, it pointed out that there are still shortcomings in the production rate, production efficiency, and level of precision in the production of high-end electronic fabrics using domestically produced equipment. The company will adopt a dual line approach of "ensuring import supply and continuously verifying domestic production".

In addition, the customer structure of the electronic fabric industry further exacerbates the rigidity of supply. During the interview, the reporter learned that among domestic suppliers, Shengyi Technology (600183. SH) mainly purchases international composite electronic fabrics, while Japan's electronic fabric sources are basically locked in by two major companies, Taiwan Optoelectronics and Panasonic, making it difficult for other manufacturers to obtain them. Moreover, once this supply relationship is established, it is difficult to break through, and new entrants need to go through a long certification cycle to break through customer barriers.

The triple constraint superposition has led to a downward transmission of price increases along the industrial chain. For example, starting from September, Panasonic's copper-clad laminate prices will increase by up to 30%, while South Asia Plastics will increase by 20% to 25%.

According to the mid-term performance conference of Jiantao laminated board on August 24th, the company's electronic fabric business profit in the first half of 2026 was about HKD 1 billion, a year-on-year increase of 280%. The monthly profit in July was about HKD 1.1 billion, reaching a historical high. During the performance conference, Zhang Guohua, Chairman of Jiantao laminated board, introduced that Jiantao's high-efficiency weaving machines will gradually increase from 3333 in 2025 to 5833 in 2028, and the total annual production capacity of electronic fabrics will rise to 1.05 billion meters. Two of the eight special electronic yarn kilns under construction in Qingyuan will be put into operation in the second half of 2026.

In addition, China Jushi's net profit attributable to its parent company in the first half of the year was 2.933 billion yuan, a year-on-year increase of 74%, with electronic fabric sales of 544 million meters; The special fiber cloth of Mount Taishan glass fiber under Sinoma Science and Technology (002080. SZ) earned 530 million yuan in the first half of the year, up 114% year on year.

Price increases are also clearing out low-end supply.

During the interview, the reporter learned that in the first half of this year, some cotton spinning enterprises and industrial fabric manufacturers attempted to weave electronic fabrics using non electronic grade fiberglass yarn to enter the market at a low price. However, the quality requirements for electronic fabric are much higher than those for ordinary industrial fabric. This batch of products has experienced problems such as foaming (bulging on the surface of the copper-clad board due to poor bonding between the fabric and resin, resulting in separation after heating) and bursting (delamination and fracture of the circuit board during use) in large areas at the terminal. According to industry practice, after a quality accident occurs, the fabric factory should compensate the copper-clad laminate factory twice the value of the goods, and the copper-clad laminate factory should compensate the downstream PCB factory five times the value of the goods. The compensation amount quickly exceeds the capacity of small factories and accelerates the concentration of supply to top enterprises.

The pressure of price increase has also penetrated to the PCB end. The investor relations activity records of Shennan Circuit (002916. SZ) from September 7th to 9th show that the supply shortage of key materials such as upstream copper-clad laminates, fiberglass electronic cloth, and copper foil continues to intensify, leading to a significant increase in related costs.

At the performance briefing on August 25th, Liu Shaobai, Chairman of Jingwang Electronics (603228. SH), attributed the decline in net profit attributable to shareholders in the first half of the year to the price increase of copper-clad laminates and exchange losses. The semi annual report of Shanghai Electric Power Co., Ltd. (002463. SZ) also showed that raw materials accounted for over 50% of the main business costs, and the gross profit margin of the automotive board business decreased by 6.22 percentage points year-on-year.

Feng Hao told reporters that the downstream's current mentality is to prioritize ensuring supply, and as long as there is continuous supply, price increases will continue first, "whoever runs out of supply will be eliminated".

The Real Bottleneck

Profit has reached a historic high, but there is no new plan for the production of electronic yarn in the industry. The experience of new entrants after the last round of price increases is still a collective memory of the industry. Public market data shows that the domestic electronic yarn production capacity increased by 270000 tons in the last two years, a growth rate of 31%. After the concentrated release of new supply, prices gradually fell back to the starting point, and new entrants suffered losses for several years.

Yang Guoming analyzed the reasons for the absence of new entrants at the performance briefing on August 21st. He said that state-owned enterprises will not be approved if their investment return rate does not meet the assessment requirements, while private enterprises will be constrained by the rise in equipment prices such as platinum rhodium alloy leak plates (core components used to draw glass fibers in melting furnaces, which are extremely expensive), resulting in a significant increase in kiln construction investment. Existing electronic fabric companies have prioritized investing funds in higher profit specialty electronic fabrics, while the willingness to invest in ordinary electronic fabrics has decreased.

Public information shows that currently only China Jushi and Jiantao laminated boards have clear plans to expand their production of electronic yarn and electronic fabric. Giant Stone put into operation a 100000 ton electronic yarn production line in Huai'an in March this year, which is currently at full capacity. Its annual production capacity of electronic fabric has increased to 1.35 billion meters. On May 13th and July 15th, Jushi announced the Huai'an Phase II project (with an investment of 4.431 billion yuan, planning 50000 tons of electronic yarn and 320 million meters of electronic fabric) and Tongxiang project (with an investment of 2.405 billion yuan, planning 250 million meters of electronic fabric) respectively. The construction period of both projects is one and a half years, and the capacity release is expected to be from the end of 2027 to 2028.

In terms of Jiantao, the 70000 ton electronic yarn production line in Shaoguan will be put into operation ahead of schedule at the end of June, and the 78 million meter special electronic fabric project in Qingyuan is planned to be put into operation in the first half of 2027. Zhang Guohua said that by 2028, the cumulative capital expenditure for expansion will be about HK $9 billion, all supported by its own profits.

Yang Guoming also revealed at the performance meeting that according to the information obtained from the company's procurement side, the monthly production of Toyota looms will increase to 200 units around the second quarter of 2027, and further increase to 300 units may take place between the end of 2027 and the beginning of 2028.

In the field of special electronic cloth, Mount Taishan glass fiber under Sinoma Science and Technology has been supplied in four categories: the first generation of low dielectric cloth, the second generation of low dielectric cloth, low thermal expansion coefficient cloth and quartz cloth. Among them, quartz cloth is still in the stage of small batch delivery, and it is also the first manufacturer in China to realize the industrialization of low thermal expansion digital cloth.

On August 7th, Sinoma Technology obtained approval from the China Securities Regulatory Commission for private placement registration, raising no more than 4.481 billion yuan and planning to add a total of 94 million meters of special electronic fabric production capacity; On August 31st, International Composite Materials also disclosed a 5 billion yuan private placement plan, of which 2.72 billion yuan will be invested in high-frequency and high-speed electronic fiber fabrics; At the August performance exchange meeting, the management of Honghe Technology announced that the company has received a second-generation fabric order from South Korean LG this year to supply Google TPU servers. Next year, the 150 million meter new project in Huangshi will release about half of its production capacity. That is to say, the expansion direction of the three companies is all directed towards special electronic fabrics.

As for the production capacity release node of domestic weaving machines, Su Wanyi's judgment tends to be in the first half of 2027. But she also pointed out that there is still a distance between "being able to weave" and "being purchased". In order for domestic equipment to enter the procurement list of fabric factories, it needs to meet the standards in four aspects: equipment accuracy, long-term yield stability, process system matching, and customer certification. The dielectric performance and thickness uniformity of high-end fabrics depend on the system coordination of yarn raw materials, wetting agent formula, weaving process, and post-treatment process, which cannot be solved by changing a weaving machine.

In her opinion, the weaving machine is just the most difficult part to replace in the electronic fabric industry process system, and the real bottleneck is the systematic accumulation of processes and certification barriers. Once domestic equipment is produced in large quantities, competition will return to the competition of yarn formula, wetting agent process, customer certification depth, and scale effect. 2028 is the real stress test point for this round of prosperity, not 2027, "she said.

Recently, the market has also been paying attention to a high-frequency material called PTFE (polytetrafluoroethylene). In the production of copper-clad laminates, electronic fabric serves as the internal reinforcing skeleton, while PTFE is another high-frequency material that can replace fiberglass as the skeleton. If it is widely used in the core components of AI servers, it may compress the demand space for electronic fabric.

But Su Wanyi believes that this concern has been magnified, because although Nvidia's next-generation Rubin Ultra server has validated PTFE on some components, mass production is expected to be as early as the second half of 2027, and the current solution tends to mix PTFE with fiberglass electronic fabric, rather than a complete replacement.

Yang Guoming also talked about the changes in the overseas market at the above performance meeting: the U.S. fiberglass giant Owens Corning has closed its Pittsburgh factory, and the production and operation of Japan Electric Nitrate (NEG) have also had problems. Some manufacturers in Japan and Taiwan, China have announced that they will no longer produce ordinary electronic cloth, and overseas orders are turning to China in large numbers.

Chinese giant stones exported over 100000 tons of fiberglass products in July and August, which Yang Guoming said was "hard to imagine" in the past. According to his observation, Japanese manufacturers are shrinking their ordinary fabric production lines, freeing up production capacity to shift towards higher profit specialty fabrics, and almost all of the vacant ordinary fabric share is being taken over by Chinese manufacturers.

In the domestic market, price increases are also changing the product structure. For example, China's Giant Stone has started using coarse yarn as a pre-treatment cloth (a low-end substitute for simple circuit boards), targeting the customer group who previously used standard grade electronic cloth. These customers used to purchase electronic cloth at a price range of two to three yuan per meter, but now the price of electronic cloth is rising significantly, and coarse yarn pre-treatment cloth has a clear cost advantage.

Mr. Liang also told reporters that according to his understanding, there is no doubt that the price of 7628 fabric factories will exceed 15 yuan/meter by the end of the year, and the price of protective products (targeted supply varieties reserved for specific customers) may exceed 20 yuan/meter. In August, when large factories quoted prices of just over 10 yuan, the price of individual orders from dealers in the second-hand market had already reached 14 to 15 yuan, and the price of individual orders has always been leading the next round of pricing for large factories.

In his opinion, the height of this round of price increases will exceed everyone's expectations.

(Author Zheng Chenye)