AI’s hidden appetite for specialty materials: The rapid rise of modified PPO resins

While investors focus on AI chips and servers, modified PPO resins are emerging as another major beneficiary of the AI infrastructure boom

By CLS Marketwatch

Global technology industries are navigating a new revolution led by AI computing. The ongoing emergence of a new generation of cutting-edge AI infrastructure has placed unprecedented requirements on the performance of underlying materials. Against that backdrop, polyphenylene oxide (PPO), an engineering plastic renowned for its exceptional performance, is rising as an indispensable core material for emerging industries such as computing infrastructure and advanced energy. Driven by domestic technological breakthroughs and strong demand for localization, China’s PPO materials sector has entered a golden age in the last few years.

Chemistry of a computing revolution

As demand for AI computing hardware explodes, requirements for signal transmission speed and loss have risen sharply. This demand is spreading upstream through the electronics supply chain, from printed circuit boards (PCBs) and copper-clad laminates (CCLs) to the specialty resins used to manufacture them. Since electronic resins account for 20% to 25% of CCL production costs and play a critical role in determining performance, PPO applications have expanded beyond traditional home appliances into emerging sectors centered on AI computing infrastructure and advanced energy.

Notably, the market for high-end modified PPO resins is currently in a state of undersupply, as overseas production capacity has contracted and new domestic capacity has been slow to ramp up. That’s caused overall supply to tighten, leading to rising prices. In particular, the supply-demand gap for modified PPO resins used in M6-M8 grade CCLs has been widening steadily.

For example, PPO production lines at both Guangdong Silver Age Sci & Tech’s (300221.SZ) and Jinan Shengquan Group (605589. SH) are running at full capacity with full order books. Yet actual capacity is constrained by multiple technical bottlenecks. While Silver Age’s original design capacity was 300 tons per year, its actual output is less than that due to complex processes, non-standardized production lines, and a shortage of specialized talent. Meanwhile, Shengquan has been building on its existing capacity of about 1,500 tons per year, with an additional 2,000 tons under construction and expected to come online as early as the fourth quarter of 2026. Nevertheless, the long-standing dominance of the global electronic-grade PPO resin market by Sabic has not fundamentally changed, and Chinese domestic products are still in the early stages of development.

Staggering economics of modified PPO resins

PPO has long been hailed as the “crown jewel of plastics” due to its demanding manufacturing process and extremely high barriers to entry. “Modification” here is the pivotal step in achieving commercial applications for PPO, with the key being to address the shortcomings of insufficient heat resistance and poor adhesion in standard PPOs during PCB processing, which Chinese enterprises are working on. Domestic players have already succeeded in producing mid- to low-end products, and are expected to start taking share within the next few years.

The PPO resin independently developed by Tongyu Advanced Materials (301630. SZ) has been certified by select customers and is currently under commercial promotion. Similarly, following certification of resin-related products by its TYADMT subsidiary, both production and sales have grown rapidly. By 2025, sales reached 28,900 tons, representing a year-over-year increase of more than 6.3 times.

Shengquan can deliver a full range of resin products from M6 to M9, with its M10 resin currently being certified. The high-frequency, high-speed resins it produces notably go to both leading domestic and international CCL manufacturers.

At the same time, the premium effect for high-end products is remarkable. Premium PPO resins tailored for the AI computing sector command prices 20% to 30% higher, and certain specifications can even double the price. Boosted by AI servers and other applications, global demand for PPO in high-speed CCL is projected to reach approximately 8,000 tons in 2026, with prices potentially hitting 800,000 yuan ($118,160) per ton. This demonstrates the immense revenue-generating potential of advanced PPO products, which in turn points to a promising industry outlook and substantial gross margins.

A patient climb toward market acceptance

Despite technological strides among Chinese manufacturers, substitution in the premium market still presents major challenges. Electronic-grade PPO typically requires triple certification from CCL and PCB manufacturers, as well as end-users, and this lengthy verification cycle can pose a critical barrier to new entrants.

Modified PPO resins used in advanced CCLs are still largely imported for now, primarily due to reliance on established supply chains and proven trust. Since downstream customers in high-precision and cutting-edge fields are intensely sensitive to trial-and-error, domestically produced high-end materials require a longer validation period to build credibility. However, as domestic materials gain ground in the mid- to high-end segment, their cost-effectiveness and service advantages will gradually alter this landscape.

Looking ahead, the modified PPO resin industry has strong growth momentum and features multiple technological pathways developing in parallel. In addition to PPO itself, hydrocarbon resins have also become an important area for development. Yet in M9 and higher-grade high-speed CCL or substrate systems, PPO/OPE resins continue to serve as the primary material, with performance and processability balanced through blending with other hydrocarbon resins. In this regard, Sichuan EM Technology (601208. SH) has already achieved stable mass production of M9-grade hydrocarbon resins; Shengquan, meanwhile, is planning a 1,000-ton-per-year hydrocarbon resin production project, which is expected to be completed and gradually put into operation by the fourth quarter of 2026.

Overall, the modified PPO market has a promising outlook due to a widening supply-demand gap and rising prices. Although triple certification requirements and customer trust remain major obstacles for homegrown materials entering the high-end market, as new production capacity rolls out and downstream validation progresses, domestically produced electronic-grade PPO is set to break the current dependence on imported products in the coming years and provide more competitive material support for the global AI computing sector.

CLS Marketwatch provides insights and analysis on China’s industries. You can contact the author at liujingyi@cls.cn

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