By CLS Marketwatch
The rapid build-out of AI computing infrastructure has led to a surge in demand for a little-known class of engineering plastics, with modified polyphenylene oxide (PPO) resins emerging as a critical material for high-speed electronics.
As AI servers require faster data transmission and lower signal loss, demand is spreading up the electronics supply chain, from printed circuit boards (PCBs) and copper-clad laminates (CCLs) to the specialty resins that determine their performance. Tight global supply and growing efforts by Chinese manufacturers to replace imported materials are reshaping the market.
The high-end modified PPO resin market is currently undersupplied. Overseas production capacity has contracted while new Chinese capacity has yet to reach scale, pushing prices higher. The imbalance is particularly acute for resins used in M6-M8 grade CCLs, a key component in AI-related hardware.
China’s domestic producers are expanding output, but technical challenges and lengthy customer qualification processes mean imported products still dominate the premium segment.
Supply struggles to keep pace
PPO has long been regarded as one of the most technically demanding engineering plastics to manufacture. Its commercial value lies in modification processes that improve heat resistance and adhesion, allowing it to meet the demanding requirements of PCB production.
Chinese manufacturers have made progress, particularly in mid-range products. Guangdong Silver Age Sci & Tech(300221.AZ) and Jinan Shengquan Group (605589.SH) are both operating their PPO production lines at full capacity with strong order books, although technical constraints continue to limit output.
Silver Age’s production remains below its designed annual capacity of 300 tons because of complex manufacturing processes and shortages of specialist expertise. Shengquan currently has about 1,500 tons of annual capacity and is building another 2,000 tons, expected to begin production in the fourth quarter of 2026.
Despite these investments, Saudi Arabia-based chemicals producer Sabic continues to dominate the global electronic-grade PPO market, while Chinese suppliers remain at an earlier stage of development.
Higher performance, higher margins
Several Chinese companies are beginning to commercialize proprietary products. Tongyu Advanced Materials (301630.SZ) has secured customer certification for its independently developed PPO resin and is expanding commercial sales. Through its TYADMT subsidiary, production and sales have risen rapidly following product certification.
Shengquan supplies resins covering M6 through M9 grades, while its M10 products are undergoing customer qualification. The company’s high-frequency, high-speed resins are already supplied to leading domestic and overseas CCL manufacturers.
The financial incentives are considerable. Premium PPO resins designed for AI computing applications typically command prices 20% to 30% above standard products, while some specialized grades can sell for twice as much.
Driven by demand from AI servers and other high-performance computing applications, global demand for PPO used in high-speed CCLs is expected to reach about 8,000 tons in 2026. Prices could rise to as much as 800,000 yuan ($118,160) per ton, highlighting the sector’s attractive growth and profit potential.
Certification remains the biggest hurdle
Despite improving technology, Chinese producers still face significant barriers in displacing imported materials at the high end of the market.
Electronic-grade PPO generally requires certification by CCL manufacturers, PCB makers and end customers before it can be adopted commercially. This lengthy qualification process slows market entry and reinforces the advantages of established international suppliers.
Most advanced CCL manufacturers continue to rely on imported modified PPO because of long-standing supply relationships and proven product reliability. Customers in high-precision applications remain reluctant to switch materials without extensive validation.
Over time, however, domestic suppliers are expected to gain ground as they demonstrate consistent quality while offering lower costs and faster customer support.
Alongside PPO, hydrocarbon resins are emerging as another important area of development. Even so, PPO and OPE resin blends remain the preferred materials for M9-grade and more advanced high-speed CCLs because they offer an effective balance of performance and manufacturability.
Sichuan EM Technology (601208.SH) has already achieved stable mass production of M9-grade hydrocarbon resins, while Shengquan is planning a 1,000-ton annual hydrocarbon resin project that is expected to begin operating progressively from the fourth quarter of 2026.
Although customer qualification remains a bottleneck, expanding production capacity and continued technological advances are expected to reduce China’s reliance on imported electronic-grade PPO over the next few years, strengthening the supply chain for the global AI computing industry.
CLS Marketwatch provides insights and analysis on China’s industries. You can contact the author at liujingyi@cls.cn
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