Earnings Call: Q2 2020

Aug 18, 2020

Good day, and welcome to the Daetou New Energy Second Quarter 2020 Results Conference Call. All participants are in a listen only Please note this event is being recorded. I would now like to turn the conference over to Kevin He, Investor Relations. Please go ahead. Hello, everyone. I'm Kevin He, the Investor Relations of Daqo New Energy. Thank you for joining our conference call today. Daqo New Energy just issued its financial results for the Q2 of 2020, which can be found on our Web site 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. Min 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 Q2 of 2020. After that, we will open the floor to Q and 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 law, we will occasionally reference monetary amounts in U. S. Dollar terms. Please keep in mind that our functional currency is the 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, Tom Zhao. Please. Thank you, Kevin. Hello, everyone. Thank you for joining our conference call today. The Q2 of 2020 was a particularly challenging time for the polysilicon industry. Beginning in the later March, the global spread of COVID-nineteen and the related lockdowns, particularly in the U. S, Europe and certain emerging markets, resulted in significant disruptions to demand for solar PV products. End market customers delayed module orders and shipments due to uncertainties about the duration and economic impact of pandemic after pandemic as well as logistically change challenges. This led to short term market uncertainty and volatility across the entire solar PV industry during the Q2. As a result, our major wafer customers also delayed orders and product delivery in the month of April, creating a temporary oversupply in the market at the time. This abnormal market environment with its sharp and sudden drop in demand resulted in significant negative impact polysilicon pricing for the quarter. Fortunately, the impact was temporary and the market began to recover in May with orders and demand normalizing in June, supported by a strong end market in China and abroad. We are pleased that despite such challenges faced by the industry during the period, Daqo New Energy was able to generate positive net income for the quarter, further demonstrating the strength and resilience of our business model and our proven lower cost structure. Towards the end of the second quarter, we began to see very positive momentum in solar PV demand in both domestic and overseas markets, supported by additional capacity expansions by downstream mono wafer customers. This has translated into meaningful demand improvement in for polysilicon, which has driven a significant increase in polysilicon FPs recently. From feedback from customers, their order book for the Q3 is full and the module order volumes look stronger through the year end. This strong volume demand has led to a shortage within the polysilicon market. Current market ASPs for mono grade polysilicon are approximately $11 to $12 per kg, a significant improvement from approximately 7.5 per kg in the Q2. Our latest signed customers orders and contracts reflect these pricing trends. We expect the polysilicon market to be extremely tightly supplied over the coming months. As there will only be very limited additional supply of polysilicon coming online over the next 15 months, While the end market demand for PV solar continues to be strong and growing and in particular there continue to be significant new additions of mono wafer production capacity. In the second quarter, we produced and sold 18,097 metric tons and 18,881 metric tons of polysilicon, respectively. Exceeding our guidance, we conducted annual maintenance for our manufacturing facilities in the Q2. However, some technology upgrade projects as well as equipment modification has been rescheduled to August due to delayed delivery of some key equipment and long lead time maintenance parts. This will have some impact on the 3rd quarter production volume. As a result, we expect to produce approximately 17,000 500 metric tons to 18,000 metric tons of polysilicon during the Q3. We expect to resume to 100% utilization rates in September after the completion of such projects. Our expected annual project volume for production volume for 2020 remains unchanged at 73,000 metric tons to 75,000 metric tons. During the quarter, we continued to make strong progress towards quality improvement and cost structure. Approximately 95% of our polysilicon production reached mono grade quality during the quarter. At the same time, we continued to improve our cost structure with further reductions in average and material usage per unit of production. Despite the impact of annual maintenance during the quarter, we achieved a historically lower cash cost of $4.87 per kg. In particular, we are making great progress in optimizing our process and manufacturing parameters for our new high flow out polysilicon reactors, improving in production volume per round and leading to lower unit energy usage. We expect cost to go even lower in Q4 as we ramp back up to full production level. We believe the solar PV market has entered a new phase of sustained growth as the grid parity has been achieved in many countries and regions around the world. Solar PV is one of the very few energy resources, which are clean, sustainable and cost effective. Even compared with traditional fossil fuel power generation methods, It is playing an increasingly important role in meeting the growing global energy demand and raising critical environmental issues such as climate change and sustainable development. We will continue our commitment to provide high quality polysilicon products to better save the fast growing demand for solar PV energy. Let's move into our outlook and guidance for the company. The company expects to produce approximately 17,500 metric tons to 18,000 metric tons of polysilicon and sell approximately 7,000 metric tons to 7,500 metric tons of polysilicon to external customers during the Q3 of 2020. For the full year of 2020, the company expects to produce approximately 73,000 metric tons to 75,000 metric tons of polysilicon, inclusive of the impact of the company's annual facility maintenance. Now, I will turn the call over to our CFO, Mr. Yang, who will discuss the company's financial performance for the Q2 of 2020. Please. Thank you, Lan Ying, and hello, everyone. Thank you for joining our call today. Now I will discuss our financial performance for the Q2 of 2020. Revenues were $133,500,000 compared to $168,800,000 in the Q1 of 2020 $66,000,000 in the Q2 of 2019. The sequential decrease in revenue was primarily due to lower ASP combined with lower polysilicon sales volume. Gross profit was $22,700,000 compared to $56,600,000 in the Q1 of 20 20 $8,600,000 in the Q2 of 2019. Gross margin was 17% compared to 33.5% in the Q1 of 2020 and 13% in the Q2 of 2019. The decrease in gross margin was primarily due to lower average selling prices for the quarter despite the improvement in production costs. Selling, general and administrative were $10,100,000 compared to $8,900,000 in the Q1 of 2020 $7,800,000 in the Q2 of 2019. SG and A expenses during the quarter includes $4,000,000 in non cash share based compensation costs related to the company's share incentive plan. Research and development expenses were $2,000,000 compared to $1,700,000 in the Q1 of 2020 $1,500,000 in the Q2 of 2019. R and D expenses vary from period to period and reflect the R and D activities that take place during the quarter. As a result of the foregoing, income from operations was $10,800,000 compared to $45,800,000 in the first quarter of 2020 and a loss of operations from of $400,000 in the Q2 of 2019. Operating margin was 8.1% compared to 27.1% in the Q1 of 2020. Interest expense was $6,700,000 compared to $6,300,000 in the Q1 of 2020 $1,900,000 in the Q2 2019. EBITDA from continuing operations was $26,800,000 compared to $63,100,000 in the Q1 of 2020 $10,200,000 in the Q2 of 2019. EBITDA margin was 20% compared to 37.4% in the Q1 of 2020 15.5% in the Q2 of 2019. Net income attributable to Daqo New Energy shareholders was $2,400,000 in the Q2 of 2020 compared to net income of $33,200,000 in the Q1 of 2020 and net loss of $2,200,000 in the Q2 of 2019. Earnings per basic ADS was $0.17 in the Q2 of 2020 compared to earnings per basic ADS of $2.37 in the Q1 of 2020 and loss per basic ADS of $0.16 in the Q2 of 2019. As of June 30, 2020, the company had $115,800,000 in cash and cash equivalents and restricted cash compared to $120,800,000 as of March 31, 2020. As of June 30, 2020, the notes receivable balance was $8,200,000 compared to $4,400,000 as of March 31, 2020. And as of June 30, 2020, total bank borrowings were $264,800,000 of which $116,900,000 were long term borrowings compared to total borrowings of $265,600,000 dollars including $149,000,000 of long term borrowings as of March 31, 2020. For the 6 months ended June 30, 2020, net cash provided by operating activities was 47,000,000 dollars compared to $67,800,000 in the same period of 2019. For the 6 months ended June 30, 2020, net cash used in investing activities was $60,400,000 compared to $145,000,000 in the same period of 20 19. The net cash used in investing activities in 2020 2019 was primarily related to the capital expenditures of Xinyang's Phase 3b and Phase 4a polysilicon projects. For the 6 months ended June 30, 2020, net cash provided by financing activities was $16,200,000 compared to $61,300,000 in the same period of 2019. And that concludes our prepared remarks. Thank you. We will now begin the question and answer session. The first question today comes from Philip Shen with ROTH Capital Partners. Please go ahead. Hi, everyone. This is Justin Clare on for Phil today. Thanks for taking our questions. Hello, Justin. So I guess first off, you indicated in the release that ASPs that you're seeing right now are $11 to $12 a kilogram compared to $7.50 in Q2. So I was wondering what are you expecting for your overall polysilicon ASP in Q3? And then could you speak to the demand increase that you're seeing as well as we've seen an issue with supply with one of your competitors. Given what's going on with that dynamic, what are your expectations for ASPs in Q4? And then how long could actually be elevated? Justin, this is Longet. And starting, I think, July, I think, basically, demand and supply, because of downstream, demand is so high. So I think as the wafer capacity also continue to increase, especially some company most of the company want to vertically integrate including wafer, cell and module and to increase the gross margin. Then plus, I think some company the accidents and the supply should I think cause the silicon price dramatically I think bounce back. So basically, you can see, I think, the weekly, I think, the PV link the price. So for example, last week, it's back to RMB98 per kg. So we see this situation maybe will continue. And today another news come out because the flood in Sichuan. So maybe another plant the major player the plant will temporarily stop supply. So all these but that's not a major reason. The major reason I think is, if you look at the next 15 months to 18 months, we do not think any capacity on the silicon side will come in increase. But the demand we see dramatically a lot of money jumping into it to less of the grid parity and we see the waiver capacity expansion is continue going to increase. So that's why I think cost supplies come back so quickly. And we for example, I think for this month August, because July definitely I think the price didn't that high maybe around 70 to 80 SP. But this month we're thinking will be around 90 to 98. So for this quarter, I think I'm not going to give you the actual figure, but we see I think maybe the silicon price in September will continue to a little over $100 For the but I think for the Q4, I think, okay, the price maybe were between $85 to 100. Okay. That's really helpful. So then I guess turning to your production, if we just look at your Q3 guidance and then the full year production guidance, it implies Q4 production of I think about 18,400 metric tons at the midpoint. In Q1, you were able to produce 19,800 metric tons. So just wondering, given the elevated level of pricing, do you have any ability to reach kind of Q1 levels of production in Q4 and to take advantage of that pricing? Justin, we always try to make our efforts and to produce more products to meet the demand of our downstream clients. But in this moment, because for the forecast, we're always conservative. So basically, to answer your question, we will make efforts. Of course, for this quarter, we've given the guidance. You can see that, right? So basically, we always do that in that manner. Okay. And then just one last one for me on your cost structure. Q2 cost structure decreased about 3% relative to Q1. This is despite your annual maintenance and the lower production volume in the quarter. So I was wondering if you could just share a little bit about what enabled you to lower costs in the quarter despite the lower volume? And then could you give kind of an outlook for costs in Q3 and Q4? I know in Q4 you said you expect costs to be lower. So could you provide any more quantification in terms of how much lower? Thank you. Okay. Hello, Justin. This is Ming. So regarding our costs, I think certainly our Q2 cost came out to be lower than we anticipated. So even given the impact of our annual maintenance with lower production volume and you could see there's higher contribution from depreciation expense, for example. So we were still able to lower our production cost. And really a lot of it comes from a reduction in our energy usage. So we're making progress in optimizing our process and also improving throughput from our manufacturing facilities. So that in terms of energy usage, we're seeing very promising reductions and then that should continue, I think, throughout the end of the year. And also a lot of our procurement because of our scale and our efforts. So for example, a lot of the use of other materials, for example, packaging materials and also silicon powder and the graphite that are being used, all those costs are coming down as well. So that's also providing additional reductions. And the other benefit is coming from the scale of our facility. So I would say Q3, we would look to have probably similar or maybe just slightly lower cost compared to Q2. And certainly, if we look at Q4, we think there's still another probably 3% to 5% type of cost reduction even compared to our Q2 level. So that's what our current outlook is right now. Okay, great. Thank you very much. I just want to give you a little more. The cost of goods sold, I think also partially due to the foreign exchange rate. I think renminbi, I think appreciation, okay? Partially also come from there. But of course, I think the cost we will continue to cutting the cost map major from 1 is from increased efficiency and scalability efficiency. Secondly is raw materials continue to go down. But you also have to consider like MPS also maybe price will go up. But we were I think the cost we will control around I think 5 point $8.0 maybe $5.60 continue to go down maybe 2% to 3% by the end of the year. Okay. Thanks very much guys. Okay. Thanks, Justin. The next question comes from Gary Xu with Credit Suisse. Please go ahead. Hello, So I have three quick questions. So firstly, can management share with us your view on the polysilicon price outlook for next year? And secondly, so let's say if the polysilicon price stays relatively high level, Would you be concerned that the even the low tier producers may decide to expand their capacities? And the last question is quickly on if the management can share with us any update on your subsidiaries stock order listing? Thank you. Okay, Gary. To answer your question, first of all, the poly price for 2020, we believe, okay, in 2020, didn't have any new additional, I think, capacity come in. Meantime, we can see especially this time I think the polysilicon price jump up and back. A lot of companies right now going to adopt strategic policy of vertically integrated including the I think for example like Jinao, one of the U. S. Listing companies right now listing in China, Asia and they originally didn't have any capacity on the waiver segment. They just announced this Monday and it's going to increase. No, actually they have some, okay? I think Frank speaking, they have like a 7 5 to 7 gigawatts wafer in Baotou and Quijin. But this time, we're going in, I think, invest another new project, 20 gigawatts wafer capacity in Beijing in Najwa. So you can see we can see forecast a lot of company, for example, maybe Canadian Solar, maybe I think Trina, all these companies they will touch the mono waver capacity. Meantime, the major player like Longqi, Zhong Huan and also Zhong Huan is going to downstream to the module. Then also Jinko also continue to expansion I think on the wafer capacity. So we see by the end of next year, we calculation maybe around wafer capacity maybe around like 2 70 gigawatts. That's estimated need, the silicon end of the year around 800,000 tons. So that's I think demand and supply is totally a lot of gap there. So basically, I cannot tell you the I think the exactly polysilicon price, but I think next year the polysilicon price, the range should be around $85 to $95 to answer your first question. Secondly is, I don't think in this situation right now any we will do any I think the production to control our supply. Is that the question? You said that you maybe to reduce our capacity to expansion plan for the 2nd tier please. So my question is, so let's say if the polysilicon price stays high for longer, so would you be concerned that even the 2nd tier relatively low tier polysilicon producers may think to kind of further expand their capacities? Okay. So you quite understand, okay, as the policy compliance come back, maybe it will stimulate some Tier 2, Tier 3 company continue to survive. I don't think so. The reason is because A, is you still have to keep continue to keep the cost down. Secondly, is also the quality of the products. That's the most important. Today the industry I think every monosilicon maybe around 85%. The Tier 2, Tier 3 maybe even lower their percentage. Even price come back there. They I don't think they will come back basically on the small pricing line. We'll come back to that. But there maybe will stimulate some plans to continue to expansion, I think, on the polysilicon capacity. For example, I think Asian silicon plants, right? They announced today they're going to start a new project I think 30,000 tons, metric tons production, I think to start up. So basically, I think even today, we know the planning Tongwei have 2 plants there. I think Yagui is Asian silicon maybe 30,000 tons underway. All those capacity maybe I think around 100,000 tons or 100,000 tons maybe I think will be put into production in 2020 2022. Still I think is not enough to meet the demand not meet the demand, I think. Then to answer your third question, that's why I think we are planning to do to put our Xinjiang New Image as a sub of our listing company of U. S. The Daqo Newellage listed in New York Stock Exchange go to China Star Market. Everything right now is on schedule. We believe I think in today Star Market valuation we can if we can successfully as a planning to raise the money, we think, yes, we were starting planning and study to also a certain time and we will consider to expansion our capacity. Gary, did I answer your question? Yes. Yes, thank you very much. That's all my questions. I have a question. Thank you. Great. Thank you. Thanks, Gary. The next question comes from Allen Han with JPMorgan. Please go ahead. Hi. This is Allen from JPMorgan. My first question is, I mean, with the recent price hike on the polysilicon side and also the price hike along the silicon metal chain into module, How is the feedback by the ultimate customers? I mean is there any hurdle in terms of like downstream PV demand because of the price hike? Alan, basically, I think as the consolidation continue going on, yes, in some segments right now, there are some big players there. For example, like Weibo segments, I think Longi, Jinko and Zhongkuan, even Shanxi and they are all big player right now, okay? In the module settlements, I think you can see that original like Jinko, China, Canadian Solar, even LONGi also is a bigger player. Because of each player forecast different segments and they may be because we hope the whole of this industry should be have industry average gross margin to make this industry very healthy to continue to expansion to meet the demand of the downstream client needs. So recently, I think the fighting between I think maybe between the wafer sale and module, Yes, today I think the wafer price continue to increase and squeeze the module, I think, gross margin. I don't think right now today like LONGi M6 selling price, the RMB3.25 per piece right now can make the module, I think assembling plans that player make money. So yes, we see module price also continue maybe back increase. Also we see some projects renegotiation even through the I think the history has already done the bidding system, especially in China. But I don't think that will stop the I think the downstream installation and all the projects. Maybe it will delay some projects. I think that problem is temporary. Finally, I think the player will come down, I think, to get some certain balance and to stimulate, I think, the demand. So I think the problem will cool down in Q4. And Gary, let me add a little bit to that. So I think if you look at the real downstream market, especially on the project side, so because of the current money printing and super low interest rate or even negative rates and where money is still available right now, so that a project that maybe used to require 8% to 10% project IRR or double digit equity IRR now is probably happy with the mid to high single digit type of return to the project and those projects will still move forward. So that I think some of the projects really are even not that price sensitive. So I think you actually have significant amount of demand in the market at a lower yield that's required for these projects to happen. I think that's something that people may not have looked at. And if you look at what's happening in California right now with the power outage and with the record heat, I mean, people are now probably likely want to put in place solar system even with storage, right, without regard to the cost of the system because you're now talking about in a record heat with no AC. I mean, that's not something that's even sustainable. So I think there are definitely markets that would open up, especially I think with the future trends towards climate change as well. I think Alan, I think because of the gross margin right now in each segment is different. Today, especially I think weaver segments, mono weaver segments with a high gross margin and module with a lower gross margin. So we see some advantage for the bigger wafer player if they also have some module business. I think they maybe can continue to vertically integrate into module segments. But meantime, those module player, they also can be reverse back vertically integrated to touch the wafer segments. That's just a fairly see like Jino, they just announced I think a 20 gigawatts wafer I think expansion. We will see a lot of companies like I think Canadian Solar Trainor and other company I think even Jinko continue expansion on the waiver segments. So at that time as the waiver cell and the module segments continue to vertically integrate it, I don't think the fighting will continue like this way. But the situation I just said within next 15 months to 18 months, we didn't see any polysilicon production will come in. Even let's say after 15 months, 18 months, I think Tongwei 2 plants plus 18 silicon 1 plants production line come in, still cannot meet the demand. So we I think also that's why we want to go to the stock market as soon as possible. We're working hard. And to certain time, I think we would announce what we did. So we would everywhere in the future, we also were schedule continue our expansion plan. Thank you. This is clear. And I have another question. This is related to what happened along the industry today. Just like from a technical side of things, if like we have to shut down Poly Prime for whatever reason, even with their damage, I understand that it may take some time to ramp back up the production to 100% and also to have the high mono yield output. So generally speaking, how long does it take for existing plant to ramp back up? Okay. I think we I think I just only can talk to myself. I think, Doctor, okay? I can comment on other plants. Other plants, for example, one of the plants in Xinjiang, they have, I think, accidents are hopeful they can back as soon as possible. I think they also, I think, announced and some news they announced that they think it will come back 2 to 3 months. I'm not going to judgment that, okay? But if you look at our guidance, it's very pretty sure this quarter our production I think is 17,500 to 18,000 metric tons. So for example, this month we are around 5,400 metric tons. Even though we are in the manual maintenance and we are install upgrade some equipment. So we still make efforts. So we think in September, we are full capacity running. So we're very confident and to I think to back to full capacity running, because we think the market demand so high. So that's what I say. Even what I think even today like Tongwei just announced I think at Lisan, one of the plants because of flood, I don't think that will take time maybe 2 weeks, 1 week will come back. Got you. Got you. Yes. Thanks. This is Korea. The next question comes from Colin Yang with China Securities. Hi. Thank you, management. This is Colin from Bai Yu. I've got two questions. The first one is similar to Eileen's questions. As you may know, some SAEs have already started to renegotiating the module price for already 4Q demand in China? In other words, do you expect to see a severe drop in 2020 solar installation in China affected by the rising module price, triggered by the pricing compliance? I think because of the I think pandemic situation in China in the Q1, the Q2, the globally, I think, pandemic caused the downstream, I think, especially the I think the downstream business is the demand is so weak. So that's why I think in the Q2 in each segment, I think the price reduced so very sharply. Even let's say look at the polysilicon price, I think really it's not too much company to make a profit. We are because the quality, the volatility almost more than 95% and also the cost advantage, scalability. So we have some advantage on the gross margin maybe 10% to 15% better than the industry average. So that's why we make a profit. But other people even let's say I think module sale always go down, right? You can see even weaver also go down. But weaver, historically, the mono weaver, they have the with the high gross margin. So I think just like you said, because of I think starting end of the July, the polysilicon price come back, then cost I think wafer price increased, sale price increased and the module price definitely I think slightly increased. I think that's okay. I think the market still can absorb that slightly increase. If the module price dramatically increase, then it will cause a lot of problem. One is maybe delay the project. Secondly is also I think we'll reduce the demand of the module. So I don't think that's what happened. In the history, it's never happened because the module price go down to certain level never come back in the history, okay? But this time it happened because why? Because the module price is too lower, the grid parity is there. Look at the China, all the projects right now, the bidding, the government subsidy is only like $0.03 $0.04 per KWH. The project's return is still higher. So as the interest rate continue to go down, I don't think some projects are still thinking they can absorb little higher module price. Think about that. Today silicon cost on the module only around 15% and the installation of the station solid station only 7%. So I don't think right now silicon is the major cost right now for the module for the downstream solar projects. I think glass, all these other materials maybe glass right now is the number one cost for the module. So I think the market will tell you demand and supply fire will bounce back. I don't think the market will be hurt. Temporary, yes, but long term, I think the market will come back. I don't think even some unreasonable, irrational price of sale or even waiver can sustainable. Thank you, Wang Bin. So my second question is about the sustainable gross margin we are expecting because as we mentioned there is going to be no effective capacity addition over the next 15 months. So this is our expectation of 85% to 95% plus gross margin in next year will be outpacing 50%. So do you think 50% is going to be a sustainable gross margin for Puxenten? And you have any updates for the capacity expansion plan? Thank you. Okay. For the polysilicon, I think the segments polysilicon is the I think with the high technology and heavy capital investments and the long term investment circle. And for example, any new entry come in, you need to take at least maybe I think right now the 1 year to construction the projects. So it's very tough. Even let's say like New Horizon, right? They have the money, they invest in polysilicon, but still not successfully. So what we believe I think the chemistry industry I think this industry the average gross margin should be around 30 percent 25% to 30%. But if the good player in the industry should be around 30% to 35%. So, Daqo is the I think is the one of the high quality, low cost player in China. So we believe next year our gross margin should be around 35% to 45%. The next question comes from Tony Fei with BOCI. Please go ahead. Hi, management. Thanks for taking the questions. I actually have two questions. Firstly, regarding your ASP side. So in Q3, we see the poly price increase in a very fast fashion. So how frequently do you adjust your sales price, your actual delivery prices to your wafer clients? Is it biweekly or biweekly basis? That's the first question. And second, regarding your CapEx in Q3, so given your ongoing maintenance, so what kind of CapEx are we looking expecting in the Q3? Thank you. Okay. I'll answer the first question. I'll let Ming to answer the CapEx next question, okay? I think for the ASP, okay, we're looking to practice practically right now what we're doing is we based on the PV link. Usually, we every month on the 20s, we're negotiation with our client to determine next month deliver how much based on market price we'll make the price, okay? But starting I think the July because the price go back so quickly, so we right now almost I think too weak to make to sign a contract. Some clients, they even 1 week to sign clients to update the price. But that's just like because the price changed so quickly, okay. We're almost 1 week, 2 week to sign the contracts. But I think when the price become more stable, we'll go back to 1 month to sign contract with 1 of the major clients. But those clients may be in a different time. But I think our major clients as you can see we signed long term contracts with the LONGi, Jinko as you can see. So it's very stable. And as soon as we signed contracts we cannot we usually we cannot easily to change the price. So that's why in July, our ASP is not basically is not a little lag behind the market. But in August, definitely, I think we catch the market. So August September, we were almost matched the new price. So we think this quarter, the ASP were higher. And we're giving you current price is around $11 to $12 per kg. And I think September the price maybe even a little higher, maybe go to 13, 14. It's just I think should temporary time. And in the Q4 definitely come back to normal. So I would believe I think the price should be around $85 to $95 is reasonable. Okay. Hello, Tony. And then regarding your question for CapEx, so new CapEx, we will spend on technology upgrade and new equipment installation is only about $5,000,000 for Q3. But total payments will be about $25,000,000 for capital investment and this would include about $20,000,000 of payments related to our projects Phase 4a based on our payment schedule. Okay, great. That's very helpful. Thank you, management. Great. Thank you. The next question comes from Jun Liu with Citi. Please go ahead. Hey, management, thanks for taking my question. I think most of the questions have been asked by the previous analysts. So I only have 2 questions. The first one is that, do you can you guys give us some colors on the maybe the detailed timetable to see our resume production in Xinjiang, our older line, because they have an investigation team to come to Xinjiang to check the safety. So I'm not sure whether you can give us maybe update or timeline on that. And the second is that considering the current price polysilicon price is very high. So do we think about I know we didn't have the reapplying of the capacity expansion yet, but will we think about it to maybe not just expand our capacity in Xinjiang? We're seeking some other place or some other province to expand our capacity. That's all my questions. Thanks. Okay. I think to answer your first question, I think right now currently our older pants, they are 4 production line and 3 production lines right now is working is right now in the production. Only one production line, that's the 3rd production line, any capacity is 5,000 tons. That because the lack of small instance plus I think the equipment is a lag behind. So we are planning to put it back to production by end of this month before end of this month. So that's why we give guidance for this quarter is 17,500 metric tons to 18,000 metric tons. And this month, we think we can manufacturing 5,400 tons to answer your first question. 2nd question is, it doesn't matter the price how high temporary. We consider we're evaluating the whole picture for the next 3 to 5 years. We believe the solar industry is rich grid parity. We think the solid industrial will continue to, I think, if without the pandemic, without the trade war, I think the solar industry should dramatically, I think, continue to increase in the downstream the market. So that's why we are evaluating every day, okay? For example, in Xinjiang, we still we already approved 4B that's the 35,000 tons projects. And it's feasible, it's approved. Then also we are looking other opportunities, I think maybe in China and Zhejiang near one of our bigger player 2 bigger player right now, the waiver capacity there, we also do right now to study. Then also the opportunities and maybe Mongolia, I think also is the one of the large wafer production center there. So yes, we are doing study right now and it's possible we are in the future if we decide to expansion our capacity even abroad, not in China, possible somewhere abroad, because we consider the U. S. Market in the future, the antidumping maybe including the silicon manufacturing cannot be in China. So that's why we do all the study right now. And meantime, we are making efforts right now just letting you know to let our Xinjiang plant go to Asia market, Star market as soon as possible to raise more money and to do that. So to a certain time, when the all these is mature, we will announce that. Thanks, Dong Ke. I have actually 2 follow-up questions. The first is that, yes, you have explained we will back to the production by end of this month. So may I ask if we have to get some approval from local government to get the production or we can just resume our production by our own schedule? And the second question, as you have mentioned, the fuel industry has reached the grid parity now. So the growth will be very fast. So do we have some kind of strategy or long term planning that we should have certain market share in the polysilicon, given we are the lowest cost player in this industry? Okay. To the first question, because of another plant in Xinjiang have the accident, So the local governments actually asking us to do all the plant, the full production line, even asking third party to come in to evaluation the safety. And the government has already approved all the production, meet the safety production criteria, allow us to start to continue running production, okay? It's already got approved. The only the 3rd production line we're not ready because we still have to upgrade the equipment the parts. So that's why we are working on that. Today, actually new parts have already come to the plant. So we think we will finish by the 25th of this month. So we think we're back in full capacity running by the end of this month. So that's the first question, okay? Second question, yes, every company have their strategic, I think strategy. To us, we continue we think our we have to forecast our experts on the silicon side polysilicon side. We have good quality, we have lower cost and we have good people, okay. And even we want to be to take advantage of stock market with the high valuation to get IPO proceeds to expansion our new plants. So yes, we're working very hard. Of course, we also have some planning there. If you look our Q1 market share, we think we are around 15%. And we think we will continue the market share at least about 15%, even reach a little higher. But we're not say we don't want to say we are number 1, we are largest. We don't want to do that promise and forecast. We do whatever we can and we forecast our experts and we forecast our planning, okay. We will announce soon, okay, our strategic plan. Okay. Okay. Thank you very much. That's all my questions. Thanks. Great. Thank you. The next question comes from Jeffrey Campbell with Tuohy Brothers. Please go ahead. Thank you for taking my questions. My first one was, I didn't notice any announcement of any material headcount reductions during the Q2. And if not, is this due to the high automation in DQ Processes? Yes. So there is no headcount reduction at all for us. I think we just had maintenance, but everybody's we've been fully employed throughout this time. Thank you. And I asked because You look our production. Actually, we in the second quarter, we actually because we have already scheduled annual maintenance, but because of the equipment is not coming on time. So we postponed our 2 production line to the August 2 maintenance. So basically Q2, our output is still very high, you look at that. Then even Q3, right now, we've given guidance also around 17,500 tons to 18,000 tons, okay. We're always very conservative. So I think with that output, we don't think we want to cut headcount. Actually will increase because we have to save employee talent for our future expansion. Right. I asked that because that's much of the rest of the industry was really having to reduce headcount to maintain costs, but you guys don't seem to have needed to do that. Earlier in the call, you mentioned variability in the ASP pricing. I was just wondering, can you maybe talk about on a percentage basis that portion of your sales that are longer term contracts such as those with Longy and Janco versus more market sensitive contracts that adjust frequently? Okay. Basically right now the contract that we with Longy and Jinko is almost approximately account as right now the account capacity around 70% percent to 75%. We actually have little room right now open for the other clients. And maybe we will sign another 1 or 2 long term contracts for the future, okay, just to cover another 3 years. And also to consider, that's why we almost right now capture our all most of our capacity right now. But you have to consider everything is moving. We may be in the future we're extension our capacity. So that's why we're doing that. So the long term contract with the LONGi and the Jinko basically is based on fixed on the credit debt, it's not the price. The price is still based on the market price. And the only thing is we collect the deposits to lock the credit and keep the relationship with our strategic customers. Okay, great. Thank you. And finally, as you talk about this 15 to 18 month period where you see significant demand growth and very low supply growth, do you have any sense of the extent to which this is being driven by residential markets versus demand for utility type projects? If you look at China, I think China, the majority in the history, I think is SOE, the company working on the farm projects, I think the distributed projects actually is not too much. But as the I think in the last second half of last year, I think because of Great Barrier right now, China distributed projects right now more and more, because those projects without any subsidized and basically the project itself and they can reach profitable and attract investments to invest money. So for example, myself also invested in Beijing, I think 7, around I think 10 megawatts, because we think it's very profitable. The instruments, the cost for per watt installed on the roof only cost like RMB3.2 per watt. You can generate every year almost 1.6 kwh. Even let's say you're selling to the grid, dollars 0.37 you're very, very, very profitable. So that's why we see in China, the distributed rooftop, the percentage continue to go up. Even I think globally, especially I think in U. S, the market the potential market is so big. The U. S, the problem right now is, I think, is the trade war. The trade war, I think, the antidumping and the 201 actually add the module price in the final consumers then plus the labor cost is higher. But I think SolarCity right now, I think it used I think the standard package try to cutting the labor cost. So they I think I was told they let's say the Rop Top they have a standard products just put on there only 3 hours. So I think those I think standard products I think in China we also work on that. For example, the roof 5,000 megawatt 5000 watts, 8000 watts all the standard just come in put on within 3 hours, 4 hours. So that way dramatically continue to reduce the cost in the BOSEC. So I think that's I think a potential in the future. Definitely, I think the distributed rooftop, the segments will continue to increase the percentage. Okay. Thanks. And I'll just follow-up real quickly on that. So it sounds like that as because earlier you said that you're considering the possibility of building some capacity closer to the United States. So based on what you just said, is it fair to say that the distributed the potential for distributed growth in the United States is a factor that's driving the possibility of getting that capacity closer to the United States? Is that fair? Yes. Maybe not exactly U. S, United States, but yes, because we're evaluating a lot of locations and because of pandemic situation, otherwise we will speed up these, I think, projects. But definitely, yes, we are working on that. To certain time, we will announce it. Great. Thanks so much for your help. Great. Thank you. This concludes our question and answer session. I would now 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 questions, please don't hesitate to contact us. Thank you and bye bye. This conference has now concluded. Thank you for attending today's presentation. You may now