A new research report from China Securities Co., Ltd. highlights that AI-driven demand inflation has now reached the materials segment, where the competitive landscape is more fragmented and dominated by Japanese players. The report notes that bilateral tensions have shown signs of intensifying since the second half of 2025, creating a near-perfect combination of supply-side import substitution and demand-side AI inflation. The brokerage anticipates further room for the import substitution theme to play out, recommending continued focus on semiconductor materials import substitution trades and monitoring the certification pace of domestic materials companies as they accelerate their import substitution efforts.

As the export peak season arrives, silicon wafer prices surged last week. On August 21, the Silicon Industry Branch of the China Nonferrous Metals Industry Association released its latest silicon wafer prices, showing significant increases driven by rising downstream demand. The average transaction price for N-type G10L monocrystalline silicon wafers (182*183.75mm/130μm) rose 40.00% week-on-week to 1.12 yuan per wafer, while N-type G12R wafers (182*210mm/130μm) climbed 26.67% to 1.14 yuan, and N-type G12 wafers (210*210mm/130μm) increased 10.91% to 1.22 yuan. The sharp price surge was primarily attributed to increased downstream demand, with overseas cell manufacturers accelerating wafer purchases during the window period to mitigate risks from the 232 policy, alongside India's traditional installation peak season driving concentrated export order releases. The combination of increased demand and market sentiment favoring buying on rising prices has created a short-term supply tightness, pushing wafer prices upward.

The EU's mandatory blending policy continues to deliver tangible results, further accelerating the global SAF market expansion. According to the latest data from Europe's leading airlines, IAG Group, Air France-KLM, and Ryanair achieved actual SAF blending ratios of 3.3%, 2.9%, and 2.0% respectively for the 2025-2026 fiscal years. European airlines' overall SAF usage has now surpassed the combined total of all US carriers, with the key driver being mandatory blending regulations implemented by the EU and UK, which have set the UK's aviation fuel SAF blending ratio to rise to 3.6% by 2026. The rigid growth in European demand is expected to push global sustainable aviation fuel premiums higher over the long term. Domestic leading enterprises with bio-jet fuel and e-SAF technology reserves are poised to capture a window of overseas export order growth, while the demonstration effect of overseas markets will also elevate expectations for domestic blending policy implementation, with upstream biomass materials, green hydrogen synthesis, and SAF refining engineering segments all offering medium-to-long-term catalysts.

SK Hynix has announced a massive share buyback program. On August 19, the company revealed a 40 trillion won (approximately $28.6 billion) share repurchase plan with complete cancellation of all repurchased shares, marking the largest such program in Korean corporate history. According to SK Hynix's filing with the Korea Exchange, the buyback amounts to 40.0043 trillion won, corresponding to approximately 24.07 million shares at the closing price of 1.662 million won per share on the day before the board resolution, representing 3.3% of total issued shares. The buyback is expected to commence on August 20 and run for approximately three months, with all repurchased shares to be cancelled upon completion.

Two government ministries have issued the "15th Five-Year Plan for New Power System Construction." On August 3, the National Development and Reform Commission and the National Energy Administration released the plan outlining development targets for the power system and various power sources through the 15th Five-Year Plan period. The document sets a goal of preliminarily establishing a new power system by 2030, with green and low-carbon power supply structure basically formed, non-fossil energy power generation accounting for 50% of total generation, and high-level consumption of over 2.8 billion kilowatts of new energy. The plan also proposes region-specific new energy utilization rate guidance targets, maintaining the national new energy utilization rate at around 90%.

The Ministry of Industry and Information Technology has released the "15th Five-Year Plan for Industrial Green and Low-Carbon Development." Officially issued on July 31, the plan (MIIT Regulation [2026] No. 169) maps out the roadmap for industrial green transformation during the 2026-2030 period. Green energy has been elevated to an unprecedented strategic position, spanning energy structure transformation, industrial spatial layout, microgrid construction, and green power direct connection models, positioning the industrial sector as the next main battlefield for new energy consumption. The plan sets targets for industrial carbon dioxide emissions to peak by 2030, significantly increased green energy application ratios, energy consumption per unit of added value for large-scale industries to decline by over 10%, carbon dioxide emissions to decrease by more than 17%, green factory output value to rise from 30% to 45% of total manufacturing output, and 500 zero-carbon factories to be cultivated.

The "15th Five-Year Plan for Renewable Energy Development" has been released, setting targets of 3.5 billion kilowatts of total renewable energy installed capacity by 2030, including over 2.8 billion kilowatts from wind and solar, and annual power generation of 6 trillion kilowatt-hours. For the first time, the plan introduces reliable substitution targets: wind and solar average confidence output reaching 8%, wind and solar power accounting for over 20% of peak evening demand during summer and winter peak periods, and over 300 million kilowatts of new reliable peak power generation capacity added during the 15th Five-Year Plan period. The plan deploys 370 million kilowatts of new capacity in the "Three North" bases, 100 million kilowatts of offshore wind starts, and 300 million kilowatts of new distributed new energy, while clarifying that newly built centralized wind and solar stations should have confidence output of no less than 10%.

Samsung has launched its first AI smart glasses, accelerating the Android XR wearable ecosystem. On July 22, Samsung Electronics unveiled its first AI smart glasses at the Galaxy Unpacked 2026 event in London, featuring Qualcomm's Snapdragon AR1 Gen1 chip, Google's Android XR as the underlying operating system, integrated Gemini AI assistant, built-in camera supporting real-time visual perception, and up to 9 hours of battery life on a single charge, with a planned launch in autumn 2026. This product represents the first consumer-grade lightweight wearable commercial deployment on the Android XR platform, directly competing with the Meta Ray-Ban series, and is expected to accelerate AI glasses category penetration while driving demand growth across the low-power AI chip, optical module, and acoustic component supply chain.

China has achieved a world-first "maritime net-based recovery" of a rocket first stage. On July 10, 2026, the Long March 10B launch vehicle lifted off from Pad No. 2 at the Hainan Commercial Space Launch Site and successfully completed a net-based recovery at sea. This marks China's first successful controlled recovery of a launch vehicle first stage and the world's first net-based recovery of a launch vehicle. This achievement signifies a major breakthrough in China's reusable launch vehicle technology. Over the next three years, China's commercial space launch costs are expected to decline by approximately 50%, shifting the global space competition landscape from unipolar dominance to a US-China bipolar parallel, with related materials poised to benefit.

Focusing on materials selection under the import substitution trade. AI-driven inflation has reached the materials segment, where targets are more fragmented and dominated by strong Japanese companies, with bilateral tensions accelerating since the second half of 2025. The combination of supply-side import substitution and demand-side AI inflation creates an almost perfect setup. Japanese semiconductor materials companies hold significant global market share, ranking first in 14 of 19 major material categories. With industry trends driving demand expansion and geopolitical tensions driving supply substitution logic, import substitution in critical materials is expected to further unfold. The report screens for niche tracks where Japanese companies currently hold high market share, including photomasks, blank masks, semiconductor precursors, CMP pads, photoresists and monomers, ceramic powders, InP substrates, PI films, high-end fluoromaterials, wet electronic chemicals, and large silicon wafers.

Wet electronic chemicals: AI demand drives renewed localization rate improvement. Wet electronic chemicals are primarily used in wet processes such as cleaning, etching, development, and stripping in semiconductor and display panel manufacturing. They feature extremely low impurity content after strict purification, with high technical barriers and customer stickiness. On the demand side, AI-driven advanced process nodes and 3D NAND applications are expected to significantly increase wet chemical consumption per unit. On the supply side, the global wet electronic chemicals market remains dominated by Japanese, German, and US players, with domestic localization rates still below 30% in the high-end G5 grade market. However, supported by stable upstream general chemical raw material supply, rapid downstream domestic memory and logic chip capacity expansion, and accelerated customer verification, China's product structure upgrade and localization rate improvement in G5-grade high-end wet electronic chemicals are expected to continue materializing.

ArF photoresist monomers remain highly monopolized by Japan, with localization expected to accelerate. Photoresist resin monomers have been long monopolized by Japanese companies, posing significant supply disruption risks. Even Japanese photoresist manufacturers outsource monomer procurement, meaning photoresist localization breakthroughs alone cannot guarantee supply chain security; monomer import substitution is essential for ensuring reliable domestic supply. For monomers, the key lies in purity and batch consistency. G-line, I-line, and KrF photoresist resin monomers have achieved preliminary localization, while ArF photoresist resin monomers remain at a bottleneck stage, with Osaka Organic Chemical controlling 70% of global supply. A supply disruption would leave advanced process nodes facing raw material shortages, making ArF photoresist resin monomer import substitution a necessary condition for sustaining the domestic semiconductor industry chain.

AI demand drives MLCC nanoceramic powder cycle reversal. With AI servers upgrading from GB300 to Vera Rubin/Rubin and automotive electronics expanding under electrification/800V/advanced autonomous driving, high-end MLCCs have hit capacity bottlenecks, transmitting upward to barium titanate powder/formulated powder. AI-grade powders require particle sizes of 100-300nm with higher consistency and batch stability, commanding significantly higher prices than traditional powders. Additionally, high-end formulated powders rely on rare earth doping systems, creating uncertainty in Japanese expansion and closed-loop supply amid rare earth export constraints and China-Japan supply chain security dynamics. Domestic suppliers like Sinocera, among the few with mass production capabilities for high-end MLCC dielectric powders, are well-positioned to benefit from the AI-era expansion in high-end MLCC powder demand.

Fluoromaterials: Performance drives AI & semiconductor application explosion, an ideal import substitution choice. PFA (perfluoroalkoxy), with its extremely low metal ion leaching characteristics and resistance to strong acids and bases, can be used in semiconductor etching and cleaning processes for etch baths, cleaning tanks, CMP components, heat exchanger linings, wafer carriers during wafer transfer, and CVD reaction chamber coatings. PFA demand growth is expected to be significant with advanced process node progression. On the supply side, high-end semiconductor-grade PFA is primarily monopolized by overseas players such as Chemours and Daikin. Juhua Co., Ltd. recently launched 10,000 tons of ultra-pure PFA production capacity, becoming the first domestic company to break through the 600,000 yuan/ton price level. Electronic-grade PTFE (polytetrafluoroethylene), with its extremely low Df and Dk values, is currently the most ideal resin material for high-frequency high-speed CCL substrates. Given PTFE's significant cost advantage over other materials combined with performance benefits, it is poised for rapid volume growth. High-end FEP (fluorinated ethylene propylene) can also be used for optical fiber protective layers and semiconductor wet cleaning piping applications, with high-purity electronic/semiconductor grades requiring imports from Chemours, Daikin, and AGC.

Fluoropolymer materials are undergoing industrial upgrading amid rapid development in advanced semiconductor processes, new energy, and high-frequency communications. Fluoropolymers feature extremely stable performance due to the strong C-F bond, offering excellent corrosion resistance, chemical stability, and dielectric properties. PFA, the high-end modified version of PTFE, has become an irreplaceable critical material in advanced semiconductor processes. Semiconductor-grade high-end products can reach the 600,000 yuan/ton price range, with global semiconductor demand currently around 20,000 tons and domestic demand approximately 6,000-7,000 tons. Juhua Co., Ltd.'s recent achievement of 10,000-ton ultra-pure PFA autonomous mass production represents a major step toward self-sufficiency with broad import substitution space. FFKM (perfluoroether rubber), the upgraded version of FKM fluororubber, features carbon-fluorine bonds replacing all carbon-hydrogen bonds, providing excellent ultra-high temperature resistance, extreme chemical corrosion resistance, plasma erosion resistance, and ultra-high cleanliness. It is the best overall performing synthetic rubber and an indispensable sealing consumable in advanced semiconductor processes, with global demand of approximately 200 tons currently monopolized by overseas giants including Chemours, Daikin, Solvay, and DuPont.

AI and drones drive the optical fiber industry chain, with materials benefiting from volume and price increases. AI large model training is driving data center network architecture from traditional three-tier aggregation to fully interconnected leaf-spine architecture, with data traffic shifting from north-south access to east-west GPU cluster interconnection. To meet non-blocking, low-latency communication requirements, fiber consumption per rack or GPU is growing rapidly. Additionally, rapid drone expansion is making optical fiber a consumable material. Driven by AI and drone demand, upstream fiber materials including silicon tetrachloride, organic silicon D4, fiber coatings, and para-aramid are expected to experience volume and price increases.

Electronic-grade PTFE is poised for large-scale application driven by rapid growth in computing power and high-frequency high-speed demand. PTFE, known as the "plastic king" for its excellent thermal stability, chemical resistance, and dielectric properties, has three major downstream demand drivers: military, server high-speed cables, and high-speed boards, all expected to grow rapidly. With Nvidia's next-generation Rubin Ultra server production approaching, the industry is actively discussing PTFE as a potential material for orthogonal backplanes, with domestic manufacturer Shengyi Technology actively cooperating on verification. As high-frequency high-speed transmission demand continues growing, PTFE's downstream applications are expected to be redefined.

Precursor industry poised for volume growth and value enhancement amid downstream expansion. Precursor products benefit from the downstream capacity expansion cycle with strong earnings growth certainty. Downstream wafer fabs including SK Hynix plan to double fab capacity over the next five years, while ChangXin also has expansion plans approaching capacity doubling by 2030. Given precursors' critical role in manufacturing processes and the ongoing miniaturization/advanced development of chip manufacturing, leading industry players have significant potential for pricing power with downstream customers and value jumps through product category iterations.

Rapid AI development triggers MLCC shortage. With the rapid growth of the AI industry, AI servers' MLCC usage has substantially increased compared to regular servers due to massive power consumption, with increases of approximately 3x or more, according to China Securities Journal. The demand surge has intensified supply tightness. Electrification, intelligence, and connectivity have become automotive industry trends, with single-vehicle MLCC usage significantly increasing as control modules multiply. SEMI indicates that semiconductor demand growth momentum will persist despite Middle East crisis, trade uncertainty, and raw material shortages. Global semiconductor sales are projected to reach $1 trillion this year, doubling to $2 trillion by 2035, driven by AI data centers. Geopolitical risks are unlikely to suppress industry prosperity this year, though raw material shortages could affect long-term prospects. Countries are addressing shortages of critical minerals and key gases including bromine and helium, with helium prices surging in March due to Middle East tensions and bromine facing shortage risks.

Helium supply chain disruptions present significant price elasticity opportunities. On the supply side, major import sources from the Middle East and Russia have been nearly completely eliminated; even with immediate full resumption of Middle East shipping, months would be required for transportation and facility restart. Russian supply recovery expectations are also blocked following export controls on helium implemented on April 14. On the demand side, helium accounts for a relatively small portion of overall costs in key end applications including MRI and semiconductors, providing acceptable tolerance for price increases. On the inventory side, domestic inventories have declined rapidly in the nearly three months since the conflict began. The report believes helium prices have ample momentum for continued increases with substantial elasticity.

Planned wind and solar installations exceed 930GW across 21 provinces. As of April 2026, 21 of China's 31 provincial-level regions have published their 15th Five-Year Plan outlines, including Inner Mongolia, Shanxi, Beijing, Tianjin, Heilongjiang, Jilin, Shandong, Shanghai, Anhui, Zhejiang, Jiangsu, Hunan, Hainan, Guizhou, Yunnan, Sichuan, Gansu, Ningxia, Shaanxi, Qinghai, and Tibet. Based on provincial new energy construction targets and end-2025 installed capacity, the 21 provinces plan over 930GW of new wind and solar capacity. Inner Mongolia has the largest planned additions at nearly 155GW, followed by Qinghai at approximately 102GW, with Shanxi, Gansu, Jiangsu, Shandong, and Sichuan each planning 50GW or more.

Solid-state battery mass production accelerates in 2026. Beginning in 2026, the solid-state battery sector has maintained strong momentum with 16 solid-state battery and materials projects reaching production, breaking ground, or signing agreements across Jiangsu, Zhejiang, Guangdong, and other regions. Among these, 8 projects have commenced production or broken ground and 8 have signed agreements, covering core electrolyte materials and solid-state batteries. Semi-solid-state batteries demonstrate higher technical maturity and serve as the current mainstream for mass production, while all-solid-state batteries remain in the "pilot production, commercial exploration" stage. On the technology front, oxide electrolyte routes are progressing faster in mass production and commercialization among projects already in production or under construction. On the materials front, two solid-state battery projects have commenced production or broken ground: Zijin Mining's solid-state battery lithium new materials project and Taizhou Qingtao's solid-state battery raw materials project (Phase I). Industry sentiment continues to rise, with leading companies advancing pilot line construction and product trial verification, with expectations for more significant all-solid-state product launches in the second half of 2026.