CITIC SECURITIES anticipates that the demand for AI-related specialty fabrics will accelerate in 2026, with supply gaps for Low DK second-generation and Low CTE fabrics expected to widen to approximately 20%. This is expected to coincide with the release of active inventory restocking demand, which is likely to amplify price elasticity. Calculations indicate that specialty fabrics account for only 0.1% of server costs, resulting in low sensitivity to price increases among downstream customers. Consequently, prices for Low DK second-generation and Low CTE fabrics are projected to more than double by 2026.
AI demand is set to accelerate significantly in 2026. North American Cloud Service Providers have continued to revise their capital expenditure guidance upwards, presenting a relatively positive outlook for 2026. Global AI server spending is forecast to increase by 99% year-over-year in 2026. Based on shipment expectations for NVIDIA, ASICs, and switches, demand for specialty fabrics is expected to reach approximately 215 million meters in 2026, representing an increase of about 120 million meters, with a further increase of around 110 million meters anticipated in 2027. The absolute value of demand growth is expected to accelerate. Additionally, second-generation fabrics are projected to gradually become the mainstream product, with their share of demand expected to rise to about 35% in 2026 and 45% in 2027.
The onset of an active inventory restocking cycle is likely to amplify price elasticity. Reviewing the previous electronic fabric price cycle, demand growth was around 10%. According to SCI99 data, cumulative new capacity additions on the supply side amounted to 130,000 tons, an increase of approximately 17%. It is estimated that the additional 7% demand was absorbed by downstream active inventory restocking, which magnified price elasticity. Looking ahead to the current cycle, downstream capital expenditure growth in 2025 is significantly higher than in 2020, and the AI-driven capital expenditure demand is expected to be larger and more sustained than in the previous cycle. The commissioning of AI-related downstream capacity in 2026 is expected to drive upstream restocking demand for specialty fabrics, thereby enhancing their price elasticity.
Prices for Low DK second-generation and Low CTE fabrics are expected to more than double. The supply-demand imbalance for high-end AI PCB capacity is expected to persist until at least 2027, likely sustaining high industry profit margins. Specialty fabrics account for only 0.1% to 0.2% of final server costs, meaning price increases will have a very limited impact on end-customer profitability. The supply-demand gap for both Low DK second-generation and Low CTE fabrics is projected to exceed 20%. Against a backdrop of tight supply and demand, combined with inventory restocking demand and strong downstream profitability, prices for these fabrics are forecast to more than double in 2026.
Drawing a parallel with the historical price surge of high-purity quartz sand, the price ceiling for specialty fabrics could potentially be higher. High-purity quartz sand prices accumulated a 300% increase in the first half of 2023, with an estimated supply gap of around 15% at the time, including restocking demand. Initially, quartz sand accounted for only 1% of downstream silicon wafer costs. Currently, specialty fabrics represent only 0.1% of AI-related downstream costs, but the profitability of AI downstream sectors is significantly higher than that of silicon wafers. This suggests a much greater tolerance for price increases in specialty fabrics among AI customers. Comparing the two scenarios, both high-purity sand and the specialty fabrics face supply gaps exceeding 15%. High-purity sand benefits from a more favorable competitive landscape, while Low DK second-generation and Low CTE fabrics benefit from superior downstream profitability and greater cost absorption capacity. Consequently, the theoretical price ceiling for these specialty fabrics in 2026 is considered higher than that previously seen for high-purity quartz sand.
Key risk factors include significant macroeconomic fluctuations, rising costs of raw materials and fuel, irrational release of new capacity,衰退 in overseas demand, weaker-than-expected demand and market penetration for high-end products, and intensifying industry competition.
Regarding investment strategy, demand for specialty fabrics is projected to reach approximately 215 million meters in 2026, with an increase of about 120 million meters, and a further increase of around 110 million meters in 2027. The absolute growth in demand is expected to accelerate. The rapid commissioning of AI-related downstream capacity is anticipated to drive upstream restocking demand for specialty fabrics, thereby amplifying their price elasticity. Given that specialty fabrics constitute only about 0.1% of server costs, prices for Low DK second-generation and Low CTE fabrics are expected to more than double in 2026.