Indium phosphide (InP), essential for enabling ultra-fast data transmission in AI data centres, is experiencing unprecedented price increases in China amid booming demand and tightened export controls, impacting global supply chains and prompting significant production investments across Asia.
- Indium phosphide wafer prices in China nearly doubled since late 2025.
- US and Chinese export restrictions strain the global supply chain.
- Asian producers invest heavily to expand InP capacity amid robust demand.
What happened
The artificial intelligence boom is significantly driving demand for indium phosphide (InP), a chemical compound used in lasers that convert electrical signals into light for fast data transmission through fibre optics in data centres. Prices for InP wafers in China have surged sharply, with two-inch wafers rising from 500 yuan in late 2025 to 880 yuan in June 2026, and three-inch wafers climbing from 1,800 yuan to 3,200 yuan in the same period. This spike reflects intense demand from AI data clusters requiring high-speed optical communication.
Further complicating the market, export controls imposed by China since early 2025 require licenses for InP shipments, limiting supply availability outside the country. At the same time, US authorities are considering bans on new Chinese optical transceiver models, potentially restricting access further. These regulatory pressures are causing supply chain uncertainty and have prompted major suppliers such as AXT and Japanese firms JX Advanced Metals and Sumitomo Electric to announce ambitious capacity expansions and enter long-term supply agreements.
Why it matters
Indium phosphide is critical for optical modules that form the backbone of ultra-fast data transmission networks in AI data centres. The price surge and supply constraints increase the cost and risk of deploying large-scale AI infrastructure worldwide, potentially slowing innovation or shifting sourcing strategies. With China dominating InP production and export controls in place, global customers and technology manufacturers must navigate complex geopolitical and regulatory landscapes when securing materials.
The tight supply also highlights vulnerabilities in semiconductor and advanced materials chains as AI demand accelerates. The ongoing price hikes and production bottlenecks could catalyze alternative sourcing efforts or accelerate investments in expanding capacity. Japanese firms reacting with significant investments underscore the regional strategic importance of maintaining stable InP supplies to meet the growing global appetite for AI-enabled computing.
What to watch next
Stakeholders should monitor developments around US export restrictions on Chinese optical components, including the scope and implementation timeline, as these could further constrain supply or push production outside China. Additionally, the issuance rate of Chinese export licenses for InP and the pace at which suppliers expand capacity will be key indicators of supply chain resilience and price stabilization.
Investment plans by leading Japanese manufacturers and critical long-term supply contracts with companies like AXT, Lumentum, and Coherent will also influence market dynamics. As substrate availability gradually improves, the attention may shift towards bottlenecks in the manufacturing of finished laser devices built from InP wafers, affecting the overall speed at which AI infrastructure can scale.