The AI chip production boom is driving surging demand for upstream raw materials, and following the market buzz around memory chips, 12-inch silicon wafers — the most fundamental material in semiconductors — are entering a new cycle of price increases. Industry research indicates that long-term wafer contracts signed in 2027 will see across-the-board price hikes, with polished wafer prices potentially rising over 40% and some second-tier customer orders exceeding 50%, with the upward trend expected to persist into 2028.

Silicon wafers, serving as the foundational substrate for chip manufacturing, are often called the "cornerstone" of the semiconductor industry. The first step in chip production involves creating integrated circuits on wafers through a series of complex processes such as photolithography and etching. In terms of size, 12-inch large wafers are primarily supplied for advanced processes used in AI logic chips, smartphones, and PC processors, while 6-inch and 8-inch wafers cater more to power semiconductors, automotive electronics, and industrial chips.

As global AI chip makers expand production capacity on a massive scale, the consumption rate of 12-inch wafers is climbing rapidly, revealing a growing supply-demand gap. This latest round of long-term contract price increases is a direct result of the tightening supply-demand balance. In the semiconductor industry, wafer fabs typically secure supply volumes and purchase prices through long-term contracts, known as "long-form agreements," while spot purchases are made ad hoc in smaller quantities with higher price volatility.

Currently, spot prices for 12-inch wafers have been steadily climbing, and analysts predict that by the fourth quarter of 2026, spot prices could surpass those of previously signed long-term contracts. The strength of spot prices is expected to be a key support for renegotiating new long-term agreements in 2027. Notably, signals of wafer price hikes emerged as early as late August, when market chatter indicated that global wafer prices were rising across all sizes — 6-inch, 8-inch, and 12-inch — for the first time in three years, with minimum increases of 10%.

In September, price adjustments continued to take effect, with wafer maker Wafer Works completing 6-inch wafer price changes and already discussing 8-inch wafer quote adjustments with some customers, with new prices set to take effect next year. For instance, on September 11, National Silicon Industry Group Co., Ltd. (ASX: 688126) stated on its investor relations platform that the domestic wafer market had gradually stabilized and entered an upward trajectory in the first half of the year, with some products that had seen larger price declines starting to recover and high-demand categories gaining room for price increases. Grinm Semiconductor Materials Co., Ltd. (ASX: 688432) management said at a recent earnings call for the first half of 2026 that its 6-inch and 8-inch wafer prices had been successively adjusted.

Global wafer leader GlobalWafers' chairman, Hsu Hsiu-Li, recently revealed that the wafer market has indeed entered a price-rising phase, and the trend is not limited to short-term spot markets — long-term contract prices are also rising, reflecting a change in customer attitudes toward future demand and supply visibility. Currently, long-term agreements still account for a relatively low share of total capacity, mainly because a new wave of contracts is only just beginning, and this proportion is expected to keep climbing, with GlobalWafers planning capacity in line with long-term demand.

From a supply-chain perspective, the most direct beneficiaries of wafer price hikes are global wafer manufacturers. Overseas leaders like GlobalWafers, Shin-Etsu Chemical, and SUMCO hold substantial customer resources and stronger bargaining power in long-term negotiations, positioning them to fully capture the earnings elasticity from rising volumes and prices. On the domestic front, Chinese wafer makers such as National Silicon Industry Group Co., Ltd. (ASX: 688126), Hangzhou Lion Microelectronics Co., Ltd. (ASX: 605358), Shanghai Hejing, and Grinm Semiconductor Materials Co., Ltd. (ASX: 688432) are entering a favorable window for industry upturn. Amid the global wafer price surge, gross margin recovery potential for domestic wafer companies is opening up, and the pace of import substitution is likely to accelerate.

Guosen Securities believes that as domestic and overseas fab capacity expansion accelerates, overseas fabs increase their wafer procurement from China, and domestic fabs strengthen their localization purchasing intentions, the growth momentum for 12-inch wafer demand is expected to further strengthen, with the price hike trend projected to continue. BOC International notes that benefiting from downstream demand growth and continuous technological progress, the global semiconductor materials market is expanding steadily, with rapid growth in demand for advanced materials. In several critical semiconductor materials, Chinese companies are steadily building capacity and R&D, with competitiveness and production-sales scale expected to keep improving.

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