Good day, and welcome to the Daqo New Energy first quarter 2022 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'd now like to turn the conference over to Kevin He of Investor Relations. Please go ahead.
Hello, everyone. I'm Kevin He, the investor relations of Daqo New Energy. Thank you for joining today's conference call. Daqo New Energy just issued its financial results for the first quarter of 2022, which can be found on our website at www.dqsolar.com. To facilitate today's conference call, we have also prepared a PPT presentation for your reference. Today, attending the conference call we have Mr. Longgen Zhang, our Chief Executive Officer, and Mr. Ming Yang, our Chief Financial Officer. The call today will feature an update from Mr. Zhang on market and operations, and then Mr. Yang will discuss the company's financial performance for the first quarter of 2022. After that, we will open the floor to Q&A from the audience.
Before we begin the formal remarks, I would like to remind you that certain statements on today's call, including expected future operational and financial performance and industry growth are forward-looking statements that are made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement. Further information regarding these and other risks is included in the reports or documents we have filed with or furnished to the Securities and Exchange Commission. These statements only reflect our current and preliminary view as of today and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties.
All information provided in today's call is as of today, and we undertake no duty to update such information except as required under applicable law. Also, during the call, we will occasionally reference monetary amounts in U.S. dollar terms. Please keep in mind that our functional currency is Chinese RMB. We offer these translations into U.S. dollars solely for the convenience of the audience. Without further ado, I now turn the call over to our CEO, Mr. Longgen Zhang. Longgen, please. Hello, Longgen?
Thank you, Kevin. Hello, everyone. Thank you for joining our conference call today. We are very pleased to report exceptional results for the first quarter of 2022, the best ever in the company's history. I would like to thank our entire team for their hard work and dedication in delivering such excellent operational and financial performance. For the quarter, we achieved a polysilicon sales volume of 38,839 metric tons, more than 3x our sales volume for the fourth quarter of last year. We recorded $1.3 billion in revenue, also more than 3x of the revenue for the fourth quarter of 2021.
We recorded operating income of $797 million, net income attributable to Daqo New Energy shareholders of $536 million, earnings per share of $7.17 per share, and EBITDA of $887 million, all representing substantial sequential and year-over-year growth. At the end of the quarter, our combined cash short-term investments and bank note receivable balance reached $2.6 billion, an increase of $1.2 billion compared to the end of last year. This strong financial performance reflects not only the strength of the end market, but also the trust that our customers place in the quality and reliability of our high-purity mono-grade polysilicon products. Last December, we began production in our new Phase 4B polysilicon facility. Production ramp-up was successful throughout the first quarter.
During the first quarter, we produced 31,383 metric tons of polysilicon, a 33% increase compared to the fourth quarter of last year, of which 97.2% was mono-grade. In the first quarter, our production cost was $10.09 per kg, a significant decrease from $14.11 per kilogram in the fourth quarter of 2021, primarily due to the decrease in the cost of silicon powder, as well as manufacturing efficiency improvements and better economies of scale. We continue to see very strong demand for our solar PV products both in China and overseas. In the first two months of this year, the new installation of solar PV in China were approximately 10.9 GW.
According to China Photovoltaic Industry Association, new PV installation in China are expected to increase from 53 GW in 2021 to 75-90 GW in this year. In the first two months of 2022, based on China's customers' data, China solar PV module export volume was approximately 26 GW, doubled from the same period of last year. As a result of the strong and expected market demand, product pricing across the entire solar PV value chain increased consistently during the first quarter. Based on statistics from the China Silicon Industry Association, the average market ASP, including that of small chunk mono-grade polysilicon, increased from RMB 231.8 per kg to RMB 253.3 per kg in the third week of April.
Reflecting healthy demand from our customers and continued tight supplies, we also see healthy growth margin in the downstream wafer sector, which indicates that the solar value chain is able to pass down the impact of strong polysilicon prices to the end market. Global trends continue to favor the solar industry, which particularly benefits the polysilicon sector. We are beginning to witness significant policy shifts to accelerate clean energy adoption and decarbonization around the world. During the month of March 2022, the European Union announced its REPowerEU initiative, which calls for an acceleration of clean energy transition under the European Green Deal. Germany, in particular, has announced an ambitious program to significantly accelerate its clean energy transition, which plans to deploy 22 GW of solar installations per year starting in 2026. A four-fold increase from 2021 installations of 5.3 GW.
As solar energy has already achieved grid parity broadly in many regions globally, the recent spike in high and volatile energy prices will further drive solar energy adoption with attractive economic results. All these factors will lead to additional demand for our products, which cannot be met by the current market supply. We believe the polysilicon sector will remain one of the most profitable sectors in the solar PV value chain, as polysilicon will continue to be in short supply and determine the actual pace and total volume of global installations. We will continue to focus on the efficient operation of our core business, increase our capacity based on market needs, enhance our competitiveness in quality and reliability, and further optimize our cost structure to provide consistent return to our shareholders.
Now, let me move to our outlook and guidance for the first quarter and whole year of 2022. The company expects to produce approximately 32,000-34,000 metric tons of polysilicon in the second quarter of 2022, and approximately 120,000 metric tons to 120,000 metric tons of polysilicon in the full year of 2022, inclusive of the impact of the company's annual facility maintenance. Now, I would like to turn the call to our CFO, Mr. Ming Yang. Ming, please.
Thank you, Longgen, and hello, everyone. Thank you for joining our call today. Now I will discuss our financial performance for the first quarter of 2022. Revenues were $1.28 billion compared to $395.5 million in the fourth quarter of 2021 and $256 million in the first quarter of 2021. The increase in revenue as compared to the fourth quarter of 2021 was primarily due to significantly higher polysilicon sales volume, as we saw very strong demand for our products from our customers during the quarter. Gross profit was $813.6 million, compared to $239.8 million in the fourth quarter of 2021, and $118.9 million in the first quarter of 2021.
Gross margin was 63.5%, an increase of 290 basis points compared to 60.6% in the fourth quarter of 2021 and 46.4% in the first quarter of 2021. The increase in gross profits compared to the fourth quarter was primarily due to higher sales volume. The increase in gross margin as compared to the fourth quarter was primarily due to lower polysilicon production costs due to lower purchasing prices for silicon raw material during the quarter. SG&A expenses were RMB 15.5 million, compared to RMB 10.2 million in the fourth quarter of 2021 and RMB 9 million in the first quarter of 2021. The increase in SG&A expenses as compared to the fourth quarter of 2021 was primarily due to an increase in shipment expenses as a result of increased sales volume.
SG&A expenses during the first quarter included $2 million in non-cash share-based compensation costs related to the company's share incentive plan. R&D expenses were $2.1 million, compared to $1.3 million in the fourth quarter of 2021 and $1.2 million in the first quarter of 2021. R&D expenses can vary from period to period and reflect R&D activities that take place during the quarter. The R&D activities this quarter includes purity and process improvements and research related to N-type polysilicon and semiconductor polysilicon. Income from operations was $796.9 million, compared to $228.1 million in the fourth quarter of 2021 and $109 million in the first quarter of 2021.
Operating margin was 62.2%, compared to 57.7% in the fourth quarter of 2021 and 42.6% in the first quarter of 2021. EBITDA was RMB 826.8 million, compared to RMB 251.1 million in the fourth quarter of 2021 and RMB 128 million in the first quarter of 2021. EBITDA margin was 64.6%, compared to 63.5% in the fourth quarter of 2021 and 50% in the first quarter of 2021. Net income attributable to Daqo New Energy shareholders was RMB 535.8 million, compared to RMB 141.3 million in the fourth quarter of 2021 and RMB 83 million in the first quarter of 2021.
Earnings per basic ADS was $7.17, compared to $1.90 in the fourth quarter of 2021, and $1.13 in the first quarter of 2021. As of March 31st, 2022, the company had $1.13 billion in cash equivalents and restricted cash, compared to $724 million as of December 31st, 2021. As of March 31st, 2022, bank notes receivable balance was $1.5 billion, compared to $366 million as of December 31st, 2021, and $38.5 million as of March 31, 2021.
Total combined balance for cash, short-term investments, and bank note receivables at the end of first quarter was $2.6 billion, an increase of $1.2 billion, compared to combined balance of $1.4 billion at the end of 2021. As of March 31st, 2022, the company has no bank borrowings. Now on to the company's cash flow. For the three months ended March 31st, 2022, net cash provided by operating activities was $235 million, compared to $159 million in the same period of 2021. The increase was primarily due to higher revenues and higher gross margin.
For the three months ended March 31st, 2022, net cash provided by investing activities was CNY 166 million, compared to net cash used in investing activities of CNY 80 million in the same period of 2021. The net cash used in investing activities in Q1 2021 was primarily related to capital expenditures on the company's phase IV-B and phase IV-A polysilicon projects. Net cash provided by investing activities in Q1 2022 was primarily due to the redemption of short-term investments, offset by capital expenditures of the company's phase IV-B project in the Inner Mongolia polysilicon project. For the three months ended March 31st, 2022, net cash provided by financing activities was zero, compared to net cash used in financing activities of CNY 31.7 million in the same period of 2021. That concludes our prepared remarks.
Now we'll open the call for questions from the audience. Operator, please begin.
Thank you. We will now begin the question and answer session. Our first question comes from Philip Shen from Roth Capital Partners. Please go ahead.
Hey, this is actually Justin Clare on for Phil today. How are you guys doing?
Hey. We're good.
Good.
Thanks a lot, Justin.
Good. I guess, first off, I just wanted to start off on the construction timeline for your 100,000 metric ton poly facility in Inner Mongolia. Just wondering, were you able to commence construction in March, which I think was the plan? And then do you continue to expect completion by the end of Q2 2023?
If possible, could you share a bit of the detail on what the ramp up could look like? Like, would you be able to share your volume expectations for that new capacity in 2023, by quarter?
Justin, I think, for Inner Mongolia projects, the project total, I think starting actually last year, October, you know, starting design. Basically last year, December, we already booked, you know, some contracts, some long-term, equipment supply. Basically project is starting, you know, the field work is in April last month. The way you schedule all the equipment, I think it will be on the site, maybe by the end of August of this year. Basically, this project, I think it will starting trial production in Q1 next year, and then to ramp up in the second quarter.
Next year, definitely that 100,000 tons will help us adding the output, I think, maybe around 770,000- 800,000 tons. Plus Xinjiang, I think, the production sites. Next year, I think, our schedule, I think. I'm not giving guidance, okay, just estimated next year for the whole output, maybe around 200- 210,000 tons for next year. Of course, you know-
Okay, great.
Yeah.
Go ahead.
Of course, we are right now. I think you can see we are filing CSRC and do the follow-on offering. The total offering, I think, is RMB 11 billion. If we can be successful, raise that money by the end of June or July, then we were considering, you know, second phase, another 100,000 tons, you know, maybe for some time, certain time. Definitely, I think we're already starting, I think, the feasibility study and the energy approval for the 200,000 silicon metal in Inner Mongolia. I think that project where we use our own money, I think a certain time, second half of this year, we're starting that.
To reduce our silicon powder cost, you know, vertically integrate up, integrated to the silicon metal.
On that, when would that facility be available, the silicon metal facility?
It depends on the approval. I think it depends on right now the approval. Basically, our planning is, I think, you know, we were starting, I think, projects in the second, third quarter of this year. Hopefully, we can, you know, put a trial production because silicon metal is more easier, you know. So maybe end of this year or next year, you know, first quarter of next year, we will have some products come out.
Assuming you're successful in raising the capital in June or July here, what would be the potential timing for the next 100,000 metric tons of poly? Would that also include, I think you had planned on 20,000 metric tons of semiconductor capacity as well? Any sense for potential timing for those facilities?
As you can see right now, our cash sitting in our balance sheet is almost, you know, $7 billion. So basically, yes, we are, I think, you know, because right now, Inner Mongolia, the their first project, I think phase I, 100,000 tons, we're just starting to see. We to certain time, and we in the second half of the year, we will approve, you know, evaluation all the, you know, situation, also the market. So we maybe will announce in the second half of this year to starting-
Okay.
The second phase. Yeah. Plus they have 20,000 metric tons, the semiconductor, you know, silicon materials.
Okay. Great. Maybe shifting over to poly pricing. Could you share your latest view on the outlook for poly pricing this year, given the new supply that you expect to come online? I think, previously you had talked about maybe 250,000 metric tons of capacity coming to market this year. Any change to that expectation? Yeah, just an updated look on the poly pricing from here.
I think right now, the first quarter China manufacturing total around like 100,000-160,000 tons. For the whole this year, I think maybe around, you know, what we estimated whole this year, domestic manufacturing may be around, you know, 700,000-800,000 tons. Then plus, the import may be around 800,000-900,000 tons. The silicon price, demand and the supply, you know, the demand is based on, is not only the end market, you see the installation, but also the capacity continued expansion on the wafer segments.
Basically right now, the wafer segment is so quickly right now, the expansion, you know, especially the bigger size, I think furnaces, you see the puller machine, the puller. Basically, I think this year the polysilicon looks like, you know, the price will continue to go up. Especially we see right now in May, the price I think continue go up. Basically, we don't think the price, I think, for this year, rest of the year, will go down. For next year, if you look, you know, the some new comer, you know, you have to be careful because, you know, even like Daqo, we are, you know, C.5, actually, you know. We expansion the projects also, you know, one project by one project.
Phase by phase, right? The project is taking longer from design to equipment manufacturing, you know, to construction, to put it all together and to put it into production. For newcomers, at least I think, you know, take two and a half years to, you know, to produce, I think, a valuable product or, you know, market demand products. Plus, I think the, you know, the technology continues to improve in the cell segment. You know, the purity of polysilicon actually is from P to N, you know, the cell technology. Asking, I think, need, you know, like, the grade, too, electronic, we call E-grade, silicon quality.
Basically all these I think, you know, we think next year, China, I think, you know, the meaningful supply maybe around like 1.2 billion tons, you know. I think that's next year. We believe, I think, because the end market continues to, you know, potentially, you know, grow so quickly. We think, you know, for short term, two to three years, silicon still in total, I think, a bottleneck for the whole solar industry.
Okay, great. That's really helpful. Maybe just one more for me. You know, we saw the cost of silicon powder decline in Q1. It helped the cost structure. But as you look into Q2, can you share, you know, what you've seen in regard to silicon powder pricing and what that might mean for your cost structure, you know, also considering potential improvements in efficiency in the quarter as well?
I think silicon powder right now is very stable. For April, we procured, I think, at the price of around like RMB 23,000 per ton. Or you can say, let's say RMB 23 per kg. In April, I think you know drop down to 21. We think it is stable maybe around RMB 20-RMB 21. Basically that figure, I think you know can keep our cost. I think cash cost maybe around. Because the invested cost right now also is because the coal go up. I think our future cost can be controlled. The cash cost can be controlled around RMB 40, RMB 46, RMB 45.
Okay, great. Thank you. I'll pass it on.
Okay. Thanks, Justin.
Our next question comes from Gary Zhou from Credit Suisse. Please go ahead.
Hello, management. Thank you for taking my questions. My first question is on the balance sheet at the end of first quarter, so we still get some kind of inventory there. Just wondering, how much kind of is there some unsold polysilicon product. As we recall it by the end of last year, we have some kind of inventory. Just wondering how is the situation by the end of first quarter.
Okay. Hello. Hey, Gary. Yeah, yeah. I'll answer your question on the inventory. I think if you look at our balance sheet, well, our inventory position declined significantly from the end of 2021, from almost RMB 330 million to now around RMB 100 million. I think balance still higher than 2021 first quarter, mostly for a few reasons. One is we do have a significant portion of what we call products that are shipped to customer but not yet recognized as revenue or product en route of shipment to customer. We can only recognize revenue when the products arrive at customer side.
I think some of the recent logistical challenges with China's COVID-19 restriction has made the shipment period a little bit longer than normal in the past. We do have more portion of this, you know, inventory right now. And also naturally, with our increase in production, right? Both our production volume, you know, increased say 40%-50% relative to Q1 last year. And so naturally our work in process inventory and also our finished goods inventory will increase as well. I would say the combined impact led to our current inventory level.
I would say it's still on a relatively low or our finished inventory is relatively healthy, and we do expect it to continue to go down for the second quarter as well.
Yeah. Yeah. Thank you. This is very clear. My second question is on our cash cost. Basically, if we compare the first quarter cash cost level in RMB terms, I think it's still, you know, kind of close to RMB 15 or RMB 20 higher than our earlier levels. Kind of if you compare to when the industrial silicon price is still low. Just wondering, in terms of the average kind of industrial silicon cost, what is the average cost in the first quarter this year? And how do we expect the level to be into second quarter?
Okay, let me address that then. Okay. I think you're right about our Q1, both our production and cash costs. I think Q1 still had impact from higher cost raw material at the end of last year. I think primarily related to silicon metal and metal-grade silicon cost. I think some of the investors who else might remember, I think, silicon metal cost was high as north of $10 per kilogram at Q4 last year. Since then has declined significantly. Like Longgen Zhang said, I would say based on today's or really, you know, reflect about March costs really.
We would expect based on today's silicon metal costs, our cash costs should be in the range of CNY 45-CNY 46 per kilogram.
Yeah. Okay. Yeah. This is very helpful. This is all my questions. Thank you.
Very great. Thank you, Gary.
Our next question comes from Chao Ji from Goldman Sachs. Please go ahead.
Hi. Thank you for taking my question. Can I ask, actually, we're very delighted to see a major cost reduction in the first quarter, but was it possible for you to break down how much cost reduction actually came from the silicon powder price reduction? How much reduction come from the efficiency improvement? Also, will it be possible for you to share some guidance in terms of how much more non-silicon powder-based cost reduction we could be looking for in the coming quarters? Also, as you mentioned earlier, the current Shanghai lockdown probably would have some impact on the logistics and transportation of the raw materials and polys.
Will it be possible for you to share more color in terms of what kind of impact are we looking for our production and for the poly prices, in the coming months? Thank you.
Chao Ji. I think because our facility for phase IV-B is still in a ramp-up period, most of the cost reduction from Q4- Q1 is coming from the silicon metal procurement cost reduction. A small portion of it is from the improvements in economies of scale. For Q2, I would say we will continue to benefit from the reduction in silicon metal cost and also a greater benefit from economies of scale and manufacturing efficiency. I think right now it's difficult to break the two. I think the combined we should see a continuing cost reduction.
Sure. Totally understand. Hi, Ming Yang. Can you also share a bit more color in terms of the impact on the current lockdown, and how do you think it will impact the poly prices in the coming weeks? Thank you.
Okay. I think what we're seeing in terms of the lockdown, because the lockdown is mostly for Shanghai and for the eastern regions. I think for our Xinjiang facility or where our customer is in Inner Mongolia, I think we're not seeing any significant disruptions there. And our operations are operating very smoothly with no impact right now. Although we are making preparations for any potential impact from future COVID restrictions. Right now most of it is around logistical challenges. Maybe a longer time for product delivery to customers. And we are making preparations for those as well. I think other than that there's no significant impact for the supply chain. I think, in fact, we continue to see very strong demand from our customers.
You know, I think for the month of April, we do have much more demand naturally than what our production is or what we could sell to the market. Our customers continue to ask for more products as well. I think that's reflective of the overall demand environment.
Understood. Thank you so much.
Okay. Thank you, Chao Ji.
The next question comes from Alan Lau from Jefferies. Please go ahead.
Thank you. Congratulations to management for achieving the highest, best quarter historically. I have a couple of questions. First of all, we'd like to know what is the status of the human rights audit for now? My second question is about what is your view on certain wafer players pursuing into polysilicon business like Zhonghuan and Shangji? Would there be any conflict of interest with the company? My last question is about what is your view on the U.S. ADR risk? I am aware that the company is confident that the issue will be resolved, but just to know if there's any actions that the company is also taking in tackling those challenges. Thank you.
Your first question is about what? Status of the human rights?
The Xinjiang-related audit progress.
I think, Ming, you handle the first question, please. I answer the second and third question.
Okay. With regard to the human rights audit, that's something that we continue to be working on and pursuing. We've finished our internal audit with the help of a consultant. We're now in the process of updating our internal guidelines and policy to reflect fully the United Nations guiding principles, including not just, you know, for example, human rights and anti-forced labor issues, but anti-discrimination and promoting women's rights, you know, things like that, and promoting labor rights. We're in the process of doing those right now, and we're hoping that this could conclude maybe by the Q3 timeframe. We could move forward with the potential human rights audit by a third party auditor.
This would, of course, need to be subject to government approvals to engage such audit. I think that the current strict COVID restriction seems like would make it a little bit challenging to do that, but we're still optimistic about doing it in the future. Yeah. I think Longgen Zhang, do you wanna address the wafer player issue?
Yeah. I think, you know, because of the high profitability, I think, in solar, you know, the solar silicon, I think a lot of newcomer, I think, you know, invest money in these segments. As I just mentioned that, because this is, you know, silicon production, starting from newcomers, starting from design to investments to, you know, to procurement equipment's, to construction the plant, take a long time, at least I think, two to three years. Besides that, you see, we today have patents almost filing more than 180 patents. It's not that easy. It's not just like, you know, you manufacture a wafer. You buy the machine, build the plant, you can do within four months or three to four months. We aware of that.
I think you know a couple of wafer specialists like Zhonghuan and Shangji when they also try to step into polysilicon. We hope that they can be successful, but I think you know it take time for them to I think you know finally produce a high quality polysilicon product. This industry anyway need more polysilicon. Because the potential end market right now demand is so hot. If let's say by the year 2025 really the market reach to 800 GW 500 GW we need you know. If 500 GW we need you know I think you know 1.5 million metric tons polysilicon. So it's not much clear right now.
Even as Daqo, we still continue to expansion our capacity by 50% every year. Maybe certain time we're going to merge or acquire some company, you know. It's based on, you know, the market situation, also based on our balance sheet. If enough strong balance sheets can do that. We're aware of that. You know, we're thinking that we do our own way. Polysilicon price is determined by, you know, demand and supply, but also I think is determined by the quality. The quality also, I think, must be improved as the downstream, you know, the technology revolution, especially from P to M. We're not worried about that. At least we think, you know, maybe two to three years still is bottleneck, you know.
Especially some player, maybe they strategically announce, you know, with the local governments. Actually, if they're starting to do the project, they have to do a lot of things to do, you know. We don't think, you know, like Zhonghuan is really meant to do that. We're not sure because the contract is not signed by Zhonghuan, actually TCL, you know, the parent company. So, with the, I think, you know, with the, you know, the, the, the, another company. For the third question, I think, yes, we are listed in the U.S. and the industry right now is in good cycle, and we make, you know, a strong profitability. We're willing to return to society and also shareholders. Unfortunately, right now you see the HFCAA regulations.
I think, you know, it's not against, I think, just one company. It's all Chinese, I think, company listed in U.S. We believe, I think, China and the U.S. governments will solve the issue. We don't think, you know, I think we already see the good sign. Basically, you know, PCAOB is now working with, I think, the Big Four in China. We also see CSRC do you know some regulations and it looks like, you know, opening the auditing working papers, I think, for review. I think for certain industry, especially like us, I think we don't think, you know, any problem to open, I think, audit working papers, but it all depends on the government, I think, you know.
I think governments will solve the issue. I'm not worried about that. I think we solved the problem, I think within the deadline. Yeah. Alan.
Understood. Thanks a lot. Just a quick follow-up question on the second question. Is there any, like, transaction ongoing with Zhonghuan and Shangji? Is that going as usual?
As we know, I think Shangji right now have some real action. First of all, today they announced I think they're going to do follow on offering, I think RMB 6 billion. Stock price, you know, just to go down to the bottom, right? 10%.
Yeah.
We don't know. See, that's maybe a good sign, you know. We see they are starting to, I think, sign contracts with, you know, local Guoyang. We also do the, you know, the, I think silicon metal in that place. I think they signed the contract. As I say, it takes time. Okay? Actually, I also talked to Shangji, the Mr. Yang, yesterday and today, so I'm not going to do any comments. I see a lot of people rushing in. Finally, you know, whether you can provide, produce the final, you know, high, you know, qualified polysilicon materials for this industry, for the demand, we don't know, really. You know.
Understood.
I just say, as a major player, we are still, you know, step by step, phase by phase, very careful. Even let's say we are in Xinjiang, we did it very successfully. At least in that place, I think we'll produce 120,000-125,000. We're not, you know, we cannot like downstream so you can do. Let's say we do another 300,000 tons project. We cannot do that. 100,000 tons is already big project for us. You see almost 800 people and experienced people, then also a lot of investments. It's around like capital CapEx around RMB 8 billion.
If you look at our strong financial statements, I think we are ready, I think to challenge any, I think, you know, the industry cycle or even any newcomer.
Understood. Thanks a lot. Sorry, I meant like are Zhonghuan and Shangji buying poly from DQ, and does that change or is there any change to that or?
No, they didn't change. They signed the long-term contract w ith us, especially Zhonghuan. Zhonghuan right now, the capacity is around like 100 GW. Every year they need 300,000 metric tons polysilicon. Even though they have the joint venture with, I think, another company in Xinjiang, but they're only like 60,000 tons. So even they're going to do, I think, you know, 100 tons still cannot solve their problem, you know. They are continuing expansion in Ningxia, as you know that. By the end of this year Zhonghuan capacity, wafer capacity is around 150 GW. They need, I think, you know, 450,000 metric tons of silicon.
Understood. That's very helpful and very clear. Thanks a lot to management. Again, congratulations.
Thank you. Fei.
The next question comes from Tony Fei from Bank of China International. Please go ahead.
Hi. Good evening, management. I have two questions. First is kind of a costing question on your margin in the first quarter. We see it's up quarter-over-quarter a bit, but it could be higher without the high cost inventory in Q4 you accumulated. I'm just wondering, do you have a breakdown of the margins for the materials you made and sold in the first quarter compared to those inventories sold in the quarter? Second question is regarding the dividend. I think your subsidiary Xinjiang Daqo has approved its dividend plan in April 7th. DQ should be entitled to around over RMB 900 million from the cash payment. What is the company plan for this cash?
Do you plan to pass through it to the ADR holders, or do you prefer to repurchase some of the ADRs? Thank you.
I think, Ming, you're going to answer the first question about the margin. All right? Answer the second question.
Thank you for your question. I think you're right. The first quarter cost and gross margin was impacted by higher costs, both higher cost inventories and higher cost raw materials from the end of last year. Basically, these have pretty much been completely absorbed during Q1. Because we are using the average costing method to do our cost, it's really difficult to break or split the difference specifically. But I think just, you know, from analysis or color perspective, I think without the impact, yes, gross margin would be higher. It would be meaningfully higher than the first quarter, yeah. Maybe Longgen, do you want to address the next question?
Yeah. I think gross margin, you know, the first quarter, I think we are around like 63%, right? I think second quarter we will continue to improve. The reason is because I think that polysilicon powder, it continue go down. The selling price continue go up. So we expect, you know, the gross margin continue to improve in the second quarter. For the dividends, I think Xinjiang Daqo will pay the cash dividends to its shareholders. In Asia, we announced, I think, in May 23. Total, I think, distributable dividend is around like RMB 1.155 billion. Daqo New Energy is beneficially own 80.7% of the equity interest in Xinjiang Daqo. Expect to receive the payment from Xinjiang Daqo in late June.
Because we have to, you know, I think, you know, to foreign exchange to U.S. dollar, so then transfer money to overseas, so it take time. Definitely I think that money upon the Board's continued approval, I think, you know, maybe we can, you know, distribute the dividends or maybe we're going to buy back, you know, the shares. It's subject to the, you know, the Board's approval.
Okay. Thank you very much. Very clear. Okay, I don't.
Great.
Our next question comes from Colin Yang from Daiwa Securities. Please go ahead.
Thank you, management. It's Colin from Daiwa. A simple question. Understood we have a guidance of 3,200-3,400 tons production volume in the second quarter. Wondering, do we have any guidance on sales volume in the second quarter? Do we have concerns like the first quarter could be the peak season in 2022, because for the following quarters it's very difficult to beat 3,900 tons sales volume in the first quarter. Thank you.
I think, Mr. Yang, you know, by the end of the Q1, we have, you know, the merchandise in the shipments is around 2,574 tons. We also have inventory, 2,951 tons. Total together, add together, is like 5,591 tons. The reason is because we have some inventory because every day we're manufacturing 400 tons, you see. For the last five days, anyway, you cannot ship shipments, you see. Even shipments still in the merchandise, shipping with the merchandise. In the Q2, we've given guidance, I think, 32,000-34,000 metric tons. Therefore, we hopefully the sales volume will be go up more than that if we can reduce inventory, any inventory down to a minimum.
We see right now the market is very hot. Definitely, yes, maybe the sales volume will above the manufacturing, you know, production volume.
Thanks, Longgen Zhang. Do we have an estimate of the potential impacts from the annual maintenance?
I didn't follow you.
I mean, do we have any estimated numbers for the potential impact of production volume affected by the annual maintenance?
Oh. The production maintenance, right? You're talking about.
Yes.
Other, other-
Yeah. Impact from that.
I think, you know, usually the polysilicon plants in China, we do the maintenance usually in the hot weather. Essentially starting June to end of the year. Some player, because they have product issue, so then they have to do that. For example, like, you know, TBEA, you know that because the second phase they have issue on design problem. They do the improvements. So that's why they shut down the first quarter. I think, in winter right now, they spend two weeks to connect, I think, you know, the improved, I think, phase two in Xinjiang products.
We know that, you know, East Hope, I think they starting actually April to do the production maintenance because they had to. Our planning is, I think, starting July, June to July, one line by one line. We total have six production line. So basically, will not affect us too much on the production volume because we sign long-term contract with our clients, so we have to, you know, continue to provide silicon for our clients. So the whole year guidance we've given, I think, 120,000-125,000 tons. I think we very confident we can provide, considering the maintenance issues. Mr. Yang.
I see. Can we say that in the third quarters could be the lowest quarter with the production volume affected by the annual maintenance. This could be quite minimal.
I kind of thought the question is not clear, the voice.
Oh, I mean. It will be the third quarter this year, gonna be the quarter with the lowest production volume in 2022 affected by the maintenance.
Oh, you mean the whole China manufacturing for this year?
No.
You mean the-
No. Just our company, just for Daqo. Because we have annual maintenance starting from June to July, right? It's totally affect the production volume in the third quarter. So I'm wondering for this year quarter-on-quarter drop for the third quarter production volume for Daqo.
That will not consider, you know, considering that it's not affecting, you know, too much. The reason is that we build them, you know, part by part the production line. Even let's say if we go into maintenance, you know, for 4A, for 4B, that two production lines, mostly annual output is almost 40,000 tons. Basically, you know, we not shut down all the production lines. We just one week by one week, even we shut down one week. Basically we're not affecting, you know, too much our run rate. Our monthly run rate, the production is almost more than. It's around like 10,000-12,000 tons. Basically we will keep that, you know, that pace.
I see. Thank you very much. I have no further question.
The next question.
He thinks Colin.
Sorry. The next question comes from Rajiv Chhatri from Sunsara Capital. Please go ahead.
Good morning, and thanks for taking my question. Can you talk about what you see in terms of both demand and supply for N-type polysilicon in 2022? How much of your production would be N-type ready in the current year?
I think that, you know, it's a good question because we see that N-type cells because I think that the efficiency is higher than P-type. As you know that right now N-type technology we have, you know, I think a couple of technology. One is the HIT, one is you know, I think another is, we call back connected. You know, IBC or ABC. Okay. Like, you know, Zhonghuan right now, Xing right now, the focus on. But also we see, you know, right now N-type I think like TOPCon. Because TOPCon, you know, just based on the PERC, I think production line do some, you know, innovation improvements. I think they can transfer even, let's say, the TOPCon production line, the cost may be around 50% with PERC.
The efficiency is not there higher, maybe improve 1%. Finally, I think the HIT, IBC, ABC will be the final, I think, you know, N-type technology. Right now, every month we're shipping around like, you know, 11,000 tons- 2,000 tons. We see N-type is go up. For example, like, April right now, we shipped more than 1,000 metric tons N-type. We also see the N-type, the price, the difference, I think, the price between N-type and a P-type. At the beginning of last year, we may be around RMB 1, right now RMB 2 per kg. Right now, April went to RMB 3 per kg, the difference. In May, maybe to RMB 5 per kg.
Because we see the demand for N-type is more and more. For China producers, I think for recognized, I think, you know, qualified Daqo, I think the N-type materials right now almost qualified for all N-type wafer producers. So all kinds right now try to buy from us because otherwise they have to buy from Wacker. Wacker, I think, the quantity supply almost all long-term contracted by some players like Zhonghuan, like other players. It's not too much right now available. Basically we see N-type, you know, materials, demand is continually hot. We still see this year N-type capacity maybe less than 10% the whole market, N market.
Next year, we're talking about maybe 15%-20%. Majority, I think around 20-24. I think N-type will account for 40%, even 50%. We still think, you know, N-type, P-type are parallel, you know, available in the market. Definitely, I think a high efficiency module, N-type module right now you have premium. The module selling price in China right now is almost RMB 2 per watt. Compared to P-type is still like 1.85, 1.9. You have like RMB 0.20 premium there. I think that maybe cover their cost, I think, you know, difference. Therefore, yes, N-type is the tendency of the future technology.
Also, that technology, that trend will, you know, come back demand for high quality of polysilicon. That means you have to manufacture N-type, you know, polysilicon. That's why in Inner Mongolia, our 100,000 tons is 100% focused N-type. We are right now exactly doing the future market demand. Even though some new players come in, we even don't know whether they can produce, you know, P-type quality, I think, you know, polysilicon. It's a challenge for them. That's why we are focused on high-quality polysilicon, especially N-type, and in the future to continue to, I think, compete with others or with our, you know, competitors.
Is it your view that the only N-type polysilicon suppliers this year are Daqo and Wacker? The other Chinese companies are not able to supply N-type this year?
I'm gonna say that, but the major supplier right now is Daqo and Wacker. We know that, you know, some Chinese producer like Tongwei, they also supply a small portion of N-type right now, still recognized. But we know the bigger player all buy from us. That's why it's difficult for us. For example, last year, yesterday even some big boss from wafer manufacturing called me asking us to adding more. We didn't. We not available right now. Basically, the reason why, because, you know, manufacturing N-type materials, we have to adjust our production, you know, line some, you see. To increase the quantity, also to reduce the P-type, you know, the output also change.
Today, you see N-type and P-type in China right now, the price difference is lower, only like a 3.5 cents right now. Even it's less than $1 right now, where ASP is almost $33, $32. That is not attractive to us, incentivize us to manufacture, you know, more N-type products, you know, to sacrifice our quantity.
Thank you very much.
This concludes our question and answer session. I would like to turn the conference back over to Kevin He for any closing remarks.
Thank you everyone again for participating in today's conference call. Should you have any further question, please don't hesitate to contact us. Thank you and bye-bye.
The conference is now-
Thank you.
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