Caitong Securities: The indium phosphide industry chain is booming, and domestic substitution is expected to accelerate
The Zhitong Finance App learned that Caitong Securities released a research report saying that demand for AI computing power has exploded, and the size of the indium phosphide market as a chip substrate material will continue to expand. The production of indium phosphide requires high purity indium of grade 7N or higher and high purity red phosphorus. The technical barrier is the purity of indium and phosphorus raw materials. In the context of the accelerated implementation of AI applications to promote related infrastructure construction, the indium phosphide substrate industry chain is expected to usher in both demand growth and domestic substitution. It is recommended to focus on indium phosphide, indium, and related enterprises with resource and technical advantages in high-purity red phosphorus.
The main views of Caitong Securities are as follows:
Demand for AI computing power has exploded, and the size of the indium phosphide market as a chip substrate material will continue to expand
Indium phosphide substrates are mainly used in downstream devices including optical module devices, sensor devices, and RF devices. Compatible terminal fields include 5G communications, data centers, artificial intelligence, driverless driving, and wearable devices. According to Yole's forecast, the estimated global sales volume of indium phosphide substrates (equivalent to 2 inches) is 1.28 million tablets in 2026, with a compound growth rate of 14.4% in 2019-2026; the global indium phosphide substrate market size is 200 million US dollars in 2026, with a compound growth rate of 12.4% in 2019-2026. On the supply side, the expansion of indium phosphide production was limited by multiple barriers such as certification, technology, equipment and resources, and enterprises involved in production capacity layout had a clear first-mover advantage. The production of indium phosphide requires high purity indium of grade 7N or higher and high purity red phosphorus. The technical barrier is the purity of indium and phosphorus raw materials.
Indium resources are scarce and there are policy restrictions, and product prices have entered an upward channel
The main application area of global indium is tablet display. According to Antec statistics, global consumption of fine indium in 2025 was 2,316 tons, and the compound growth rate for 2022 to 2025 was about 7.3%. Indium resources are both scarce and associated, mainly from raw indium refining and recycling of regenerated indium; total indium resources are scarce, with proven global resources of about 356,000 tons, of which reserves are about 50,000 tons, accounting for only about 14% of the resources, and about half of the reserves when economically exploitable. China is the world's largest supplier of indium resources and international native indium, but the import dependency of high-end products is still high. 7N grade high-purity indium still needs to be imported in reverse through foreign reprocessing, and the import dependency is 68%. France's Recylex, American Indium Thai Company, European Metals Corporation, Japan's Dowa Group, and Mitsubishi Corporation all have stable and mature 6N and 7N grade high-purity indium production technology. Due to the relatively high preparation technology and difficulty of high-purity indium, there are a limited number of enterprises with high-purity indium processing capabilities in China.
High-purity red phosphorus is a very important semiconductor basic material, and the technical barriers to purification are high
High-purity red phosphorus can be used to synthesize semiconductor materials such as indium phosphide, and can also be used as an IC-doped solid phosphorus source. It is widely used in fields such as integrated circuits, solar cells, crystalline silicon, semiconductors, TFT-LCD, optical fiber prefabricated rods, and photochemistry. According to QYResearch statistics, the global semiconductor grade red phosphorus market is valued at US$211 million in 2025 and is expected to reach US$344 million by 2032. The global supply of 6N/7N semiconductor-grade red phosphorus is highly concentrated, mainly by a few companies such as Japan and Germany. Although China's yellow phosphorus, phosphate ore resources and basic phosphorus chemical system are complete, manufacturers that have relied on imports for a long time and can stably supply 6N/7N high-purity red phosphorus have significant strategic value.
Risk warning: downstream demand falls short of expectations; AI popularity falls short of expectations; raw material prices fluctuate greatly; industry competition intensifies; progress in new material development and domestic substitution falls short of expectations; progress in new construction projects and product verification falls short of expectations; downstream capital expenditure falls short of expectations; new technology iteration risks, etc.