Good day, and welcome to the Daqo New Energy first quarter 2020 results conference call. All participants will be in the 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 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 first quarter of 2020, 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 2020. 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 the 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 views 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. During the call, 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, Mr. Zhang. Please go ahead.
Thank you, Kevin. Hello, everyone. Thank you for joining our conference call today. We are pleased to report an outstanding quarter with excellent financial and operational results. I would like to thank our entire team for their hard work and dedication to make these outstanding results possible. Despite the outbreak of COVID-19 in China in January and the subsequent domestic lockdown and travel restrictions that created a particular difficult environment for securing raw materials, managing on-site operations, and facilitating product shipments and logistics, we overcame these challenges successfully and operated at full capacity during the quarter. The company produced record volume of 19,777 metric tons for the quarter and sold 19,101 metric tons of polysilicon.
Thanks to growing economies of scale , significant savings on energy consumption, and improved operational efficiency, our total production cost decreased to $5.86 per kg during the quarter, a decrease of 8% from $6.38 per kg in Q4 2019. Our cash cost during the quarter also decreased to $5.01 per kg, down from $5.47 per kg in Q4 2019. We continued to make improvements in quality, and were able to sell approximately 95% of our products to mono- wafer customers. We are very proud of the achievements we made in expanding production volume, optimizing our cost structure, and enhancing quality within only two quarters following the start of Phase 4A pilot production.
Our exceptional results this quarter reflects the strong capabilities of our Xinjiang facilities at full production following the completion of the Phase 4A expansion project. We believe this also demonstrates our extensive experience and expertise in polysilicon manufacturing and further solidifies our position as a global leader in the industry. Despite the challenging market environment, we successfully extended our gross margin by further optimizing our cost structure during the quarter. Gross margin during the quarter was 33.5% compared to 29.5% in the fourth quarter of last year.
An expanding gross margin and increasing sales volume resulted in CNY 63.1 million in EBITDA, up 39% sequentially, and CNY 37.7 million in adjusted net income, up 53.5% sequentially. Towards the end of this quarter, the spread of COVID-19 globally and the related lockdowns, particularly in the U.S., Europe, and certain other emerging markets, resulted in significant disruptions to end market demand for solar PV products. This has created short-term market uncertainty and volatility across the solar PV industry during the second quarter, with significant impact to our customers' orders and pricing. Fortunately, the spread of COVID-19 has begun to ease in May, and things are gradually returning to normal across all walks of life.
Particularly in China, we expect to see some rush orders from solar PV developers in China for legacy projects delayed from last year in order to meet the grid connection deadline set for the end of June. However, a recovery of demand from markets outside of China is critical going forward, as overseas markets currently account for approximately 75% of total global solar end market demand. With many economies beginning to reopen, we expect to see a gradual recovery of solar PV demand in the third quarter as the impact from COVID-19 fades over the next two to three months. We are optimistic that the long-term solar PV growth prospects remain intact. Despite the near-term challenging market environment, as solar PV energy continues to attract investors seeking to benefit from lower costs and interest rates.
We are also confident in our ability to navigate this challenging market, environmental, leveraging our competitive advantages in product quality and cost structure. Now I will discuss outlook and guidance for our company. We are currently conducting scheduled annual maintenance for parts of our Xinjiang facility. Our facility has grown significantly over the years, and for this year, we will be conducting annual maintenance by project phases on a rolling basis, starting with early phases of the Xinjiang facilities, which had conducted its previous scheduled maintenance in the second quarter of last year. As such, we expect to produce approximately 15,500 metric tons - 16,500 metric tons of polysilicon and sell approximately 14,500 metric tons - 15,500 metric tons of polysilicon to external customers during the second quarter of 2020.
For the full year of 2020, the company expects to produce approximately 73,000 metric tons - 75,000 metric tons of polysilicon, inclusive of the impact of the company's annual facility maintenance. This outlook reflects Daqo New Energy's current and preliminary view as of the date of this press release and may be subject to change. The company's ability to achieve these projections is subject to risks and uncertainties. Now I will turn the call over to our CFO, Mr. Yang, who will discuss the company's financial performance for the first quarter of 2020.
Thank you, Longgen, and hello, everyone. Thank you for joining our call today. I will now discuss the company's financial performance for the first quarter of 2020. Revenues were $168.8 million, compared to $118.9 million in the fourth quarter of 2019, and $81.2 million in the first quarter of 2019. The increase in revenue was primarily due to higher polysilicon sales volume. Gross profit was $56.6 million, compared to $35.1 million in the fourth quarter of 2019, and $18.3 million in the first quarter of 2019. Gross margin was 33.5%, compared to 29.5% in the fourth quarter of 2019, and 22.6% in the first quarter of 2019.
The increase in gross margin was primarily due to lower production costs. For the first quarter, our average total production cost was $5.86 per kg, a decline of 8% as compared to the fourth quarter of 2019 production cost of $6.38 per kg. With full production of Phase 4A project and an optimized production process, we were able to achieve a cost structure that was better than our original plan. In particular, we achieved per unit electricity usage reduction of approximately 7% compared to the previous quarter, and a reduction of approximately 10% as compared to Q1 last year. Cost reduction also benefited significantly from economies of scale.
Selling, general, and administrative expenses were $8.9 million for the quarter, compared to $8.5 million in the fourth quarter of 2019 and $7.9 million in the first quarter of 2019. SG&A expenses during the quarter included $4 million in non-cash share-based compensation costs related to the company's share incentive plan. R&D expenses were $1.7 million, compared to $1.7 million in the fourth quarter of 2019 and $1.3 million in the first quarter of 2019. R&D expenses can vary from period to period and reflect R&D activities that take place during the quarter. R&D projects this quarter includes new research projects for removal of impurities from production process and reduction of metal contamination to enhance our products' quality.
As a result of the foregoing, income from operations was CNY 45.8 million, compared to CNY 30.1 million in the fourth quarter of 2019 and CNY 9.1 million in the first quarter of 2019. Operating margin was 27.1%, compared to 25.3% in the fourth quarter of 2019 and 11.3% in the first quarter of 2019. Interest expense was CNY 6.3 million, compared to CNY 3.9 million in the fourth quarter of 2019 and CNY 2 million in the first quarter of 2019. EBITDA from continuing operations was CNY 63.1 million, compared to CNY 45.4 million in the fourth quarter of 2019 and CNY 19.9 million in the first quarter of 2019.
EBITDA margin was 37.4%, compared to 38.2% in the fourth quarter of 2019 and 24.5% in the first quarter of 2019. Net income attributable to Daqo New Energy shareholders was $33.2 million in the first quarter of 2020, compared to $20.1 million in the fourth quarter of 2019 and $6.6 million in the first quarter of 2019. Earnings per basic ADS was $2.37 in the first quarter of 2020, compared to $1.45 in the fourth quarter of 2019 and $0.50 in the first quarter of 2019. I will discuss the company's financial condition. The company remains in solid financial condition and has ample liquidity to meet its operational requirements and financial obligations.
As of March 31, 2020, the company had CNY 120.8 million in cash and cash equivalents and restricted cash, compared to CNY 114.4 million as of December 31, 2019, and CNY 113.7 million as of March 31, 2019. As of March 31, 2020, notes receivable balance was CNY 1.4 million, compared to CNY 5.6 million as of December 31, 2019, and CNY 0.7 million as of March 31, 2019. As of March 31, 2020, total bank borrowings were CNY 265.6 million, of which CNY 149 million were long-term bank borrowings, compared to total borrowings of CNY 280.1 million, including CNY 151.5 million of long-term borrowings as of December 31, 2019.
For the three months ended March 31, 2020, net cash provided by operating activities was CNY 31.1 million, compared to CNY 48.5 million in the same period of 2019. For the three months ended March 31, 2020, net cash used in investing activities was CNY 12.9 million, compared to CNY 38.6 million in the same period of 2019. The net cash used in investing activities in 2020 and 2019 was primarily related to the capital expenditures on Xinjiang Phase 3B and Phase 4A polysilicon projects. For the three months ended March 31, 2020, net cash used in financing activities was CNY 10 million, compared to net cash provided by financing activities of CNY 7.2 million in the same period of 2019. That concludes our prepared remarks.
We will now open the call to questions from the audience. Operator, please begin.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Philip Shen of ROTH Capital Partners. Please go ahead.
Hi, everyone. Thanks for the questions. The first one is on pricing. I was wondering if you could comment on for mono/poly pricing, what you see for Q2 and also Q3. Pricing has obviously come down this year due to the COVID-19 demand destruction. A couple of months ago on the Q4 call, you know, you suggested that pricing could dip in Q2, and then there could be a rebound in pricing as high as $11 - $12 a kilogram, I believe, in Q3 and Q4. What's your latest view, and do you see, Well, just, yeah, what's your latest view by quarter in Q2, 3 and 4? Thank you.
Thank you, Philip from ROTH Capital. This is Longgen. I think if you look at our Q1 ASP is $8.79, compare Q4 last year is $8.70. It's a slight increase. The reason is because you see, I think at Q1, even though China-
You know, hit by the COVID-19 in January and February, you know, most of factory still is running. Still running. I think the order still is essentially I think the order to our downstream clients, especially LONGi, Jinko, still I think full capacity running. We overcame all the challenges, shipping, continue shipping good to them. In, I think starting end of the March, essentially beginning in last month and this month, I think the reason is because the U.S., the Europe, I think the COVID-19, you know, caused the whole market all, you know, restrictions, travel restrictions and shutdown working factory.
I think, the all the downstream, ending market demand, suddenly it stopped. Push back to, wafer, cell, even silicon demand is dramatically go down. To us, we also face a lot of challenge. You know, we strategically, you know, sign long-term contract with, I think LONGi and Jinko, especially LONGi. During the Q1, difficult time, we still, you know, oversupply to our big clients. They are also very supported in the second quarter. The price we see, in Q4 is around $7.20-$7.50. In May, we see the price continue go down to $7-$7.20. We think, you know, this price, basically a lot of polysilicon company is losing money.
All the competitors, even Tier 1 competitors, I think, they maybe shut down due to the annual maintenance or reduce their capacity, running the capacity by discount. We believe, I think, May and June is the most lowest quarter on the polysilicon price. The polysilicon price, I think on Q3, we're back to $7.50-$7.80. On the fourth quarter, I think we're back to normal, $8.50-$9. That's the industry, you know, average gross margin, I think, around 25%. The ASP is around $9 or $8.50-$9. Just want to remind you, in Q1, our mono-silicon almost accounts for 95%. That's why our ASP is $8.79.
If you look at detail, mono-silicon price, Q1 actually is $8.97 compare last quarter is $8.99. It slightly go down. Our ASP go up. The major thing is because our mono-silicon percentage from Q4 to 2020, 89% to 95% Q1. We continue keep, you know, such high mono-silicon percentage to keep the ASP, I think, leading in the industry.
Great. Thank you, Longgen. You know, I think on the Q4 call, you talked about being 72% booked for 2020 production. Perhaps leaving 10%-15% for the spot market. Where are you now with after being done with Q1 and through much of May?
Okay. Our sales pipeline still is very good. Today, our, you know, sales contract, if I count our sales book, inventory is a negative 3,010, okay. Basically, I, this month, our most, you know, the big clients are LONGi, is shipping over our original long-term contract. Sales is not, to us, is not big issue, okay. The big issue is the price. Also, we also, you know, under annual maintenance, you know, one by one, rotating on the production line, we have five production lines. Basically, if you look our guidelines, we still at, you know, full capacity running besides that, you know, the maintenance production line. We still sell everything. We, we're making efforts to make the end inventory by the Q4 be to zero.
Okay. Got it. Can you comment about the inventory in the downstream? You know, how much polysilicon inventory is with your clients? I know it sounds like you're selling everything, but is there oversupply from or too much inventory in the channel, or the, you know, at your customers, from other suppliers, for example?
Philip, I'm a little maybe different, you know, opinion from you. The reason is because you see, I think the end market demand for module suddenly stopped. LONGi take advantage, along with Jinko, basically, okay? I think, maybe Zhongneng together. They're going to Actually, their inventory, their silicon products. Even we call it the raw materials. That's why let's say suppose for April contracts, we're supposed to sign contracts in March 20th. They delay the, you know, sign contracts to make, you know, zero inventory, let's delay the contract. If you look at our operating cash flow, why is the operating cash flow go down? The advances, cash from our clients, especially LONGi, the contracts, you see, delayed to from March 20, delayed to April 15th.
We think right now the downstream, especially our clients, the raw materials, especially polysilicon materials, almost it's only one day or two days. Like Jinko, almost three days then, you know, order from us. Three days order from us. Basically they will now keep a low inventory. I understand that the reason is because polysilicon prices continue to go down, and also the downstream demand is weak or when they come, you see, the market come back is uncertainty. I think at this moment, I think, polysilicon price, especially I think, you know, we're hit by the demand side. We are chemical company, continue production, you see. We see our competitors, some, you know, old competitors have inventory. Most of the inventory is multi-silicon. It's unsellable. For mono-silicon, there's not too much there. We know that.
We're very confident, I think, in third quarter, the silicon price, mono-silicon price will come back.
Great. That's really helpful color. Thank you, Longgen. One other one if you don't mind. What's your outlook for your cost structure? You delivered a very strong Q1 cost structure. How much more can that come down in Q2? What do you expect it to be relative to Q1 and Q2, as well as Q3?
Okay. Basically, if you look our Q1 cost of goods sold almost dropped down CNY 0.50, right? CNY 0.51. I think a majority cost go down is the utility and electricity. It's almost CNY 0.31 go down. The accessory materials, like package, like, you know, the coal, it's CNY 0.13 per kg. The salary and wages, CNY 0.08 per kg. You add up, you know, together. I think for Q You, you have to remind you, Q1 is our full capacity running. The production almost 19,000, you know, 777 tons. Q2, we because of maintenance, we don't think, you know, the cost will continue to go down. Basically, the only item will go down the Q2 is, I think, the silicon metal powder, right?
Powder, yes.
Yeah. Will go down. I think the rest of them, I don't think it will go down. Basically, I think Q2, the cost maybe keep the same or even slightly go up.
Great. Thank you very much. I'll pass it on. Thank you, Longgen Zhang.
Great. Thanks, Phil.
The next question comes from Gary Zhou of Credit Suisse. Please go ahead.
Yeah. Hello, Longgen. Thank you for taking my questions. My first question is on the demand side. What does management expect for the China demand this year, and how much for the ex-China demand? Whether does the management have any expectation for next year? Thank you.
Okay. We are very prospect, you know, I think in the solar industry. I think I feel very optimism on the Chinese market. The reason is because China may be hurt by COVID-19 in January and February, and March, I think end of March, almost, you know, all the factories is come back. I think because to connect the grid, I think by the end of June, rush to connect it. I think For China market, I think this year definitely will be around 40 GW-45 GW . Even I think it will be higher. The reason is because the distributed, I think, distributed, I think the solar power implement. I think it will go up.
For the rest of the world, the reason is because I think this COVID-19, you know, the all, if you like U.S., European, when they come back, I think it's uncertainty. Let's say if U.S., European, all the market come back in May, end of May, this month or June, I think the industry will come back in the third quarter. I think the, for the rest of the world, besides China, I think this year maybe around 70 GW . For overall, I think in, for all globally, I think this year maybe around 105 GW-115 GW. That's my range. I think next year definitely I'm very confident. The reason is because through this, I think virus, the module price continue to go down.
If you see China right now selling module per watt is CNY 1.4-CNY 1.6 per watt. Overseas, even cheaper, below $0.20, you know, per watt. The demand and the grid parity is there. Next year, I think it's definitely globally, I think it will be about 150 GW .
Yeah
-projection.
Yeah. Okay. Yeah, thank you very, very much. My second question is on the finance cost. I noticed that in the first quarter, your company's interest expense was relatively higher on quarterly basis. Is there any reason behind that, and what is our expectation for the full year? Thank you.
There were two parts related to it. One is from a higher debt balance, and also with higher bank fees related to notes payables and notes receivables, Chinese bank notes. Also, in the fourth quarter, because we were at the end of our construction period. During construction, interest costs related to a new construction project, we could capitalize part of it. I think in Q1, the project has been finished, there's been no capitalization of interest in Q1. That's the main difference. I think going forward, interest expense will be at approximately $5.5 million-$6 million per quarter run rate.
Yeah. Okay. Thank you. My last question will be on the capacity expansion. Can management share with us whether there's any current plan for further expansion and when we can expect to have further kind of clarity on that? Thank you.
I think, for the 4A, you know, we even though we right now run smoothly, I think still have some CapEx I think didn't pay. I think around like unpaid, I think still have like should be like CNY 1 billion, right? Unpaid.
So
Huh?
So she around-
Sorry. I think around CNY 600 million-CNY 700 millio unpaid. Basically, right now, also, you know, we face that in Q2, the SPs continue go down. We want to keep, you know, our balance sheet healthily. We will not consider any expansion for this year. As our financial statements continue improve, yes, we will, you know, do revaluation to see whether, you know, we have to expansion the 4B.
Okay. Yeah. Thank you very much. That's all my questions. I will pass on. Thank you.
Great. Thank you, Gary.
The next question is from Jeffrey Campbell of Tuohy Brothers . Please go ahead.
Good morning. I guess good evening.
Good evening.
at high level, your forecast for 2020 volumes was 73,000 million tons-75,000 million tons . I was just wondering, first, how does this compare to your pre-COVID-19 expectations? Second, do you have any sense of a preliminary 2021 outlook, again, relative to pre-COVID-19 expectations and the world we're in now? Thanks.
Okay. Actually, the production forecast has not changed before or after COVID-19 in terms of total volume. I think what we're doing is because a lot of the impact is to the end market, to our market, for, because polysilicon is very much in the near term, and we think the market will recover towards the end of this year, in second half this year. We actually is conducting our annual maintenance a little bit ahead of our original plan, so that we're shifting production volume between quarters so that in Q2, we'll be producing slightly less, and then we'll produce more in the second half of this year. That's for this year.
Our, our total sales volume, we think will be similar to our production volume because of the strong demand for our products, in particular for our customer. Right now for 2021, our outlook is overall the end market demand is likely to improve significantly compared to this year with market recovery. That I think our will, we don't have a concrete guidance or for production, but right now, based on our process optimization efforts, it should be higher than the production volume this year.
I just want to add a comment, okay? At this moment, we want zero inventory by the end of Q2. Even though the SP continue go down, we don't want to accumulate any inventory. That's why we moved the annual maintenance, you know, ahead. Basically, on Q2, Q3, Q4, the production capacity output will come back to Q1. That's why we keep a whole year guidance there.
Okay. That's very helpful.
We believe Q3, Q4, the SP will come back.
I know that's helpful. Kind of thinking toward that recovery and demand, we're hearing both at the utility level and at the residential level that there's been some stresses showing up in financing, particularly in the U.S., financing related to the various safe harbor and tax benefits. Just wondering, are you seeing that? Is this something that you're watching closely? You know, your view for solar coming back in the second half of the year, does this also include an expectation that there's not gonna be major financing problems?
No, I think, the U.S. we consider U.S. is a big market. Potentially, I think, Paris Agreement and also potentially, I think, the market is so big. Also you have to consider, you know, last year, over 1 GW , almost 19 countries. Basically right now, this industry hit is by the virus, you know, COVID-19 virus. We believe if this virus is come, you know, gone, the market will come back. If without this COVID-19, we think this year should be around like, 140 GW even, you know, 145 GW . Basically, we're very optimistic, you know, the whole market, you know, because module is so cheaper and, so easy to, you know, to install and, you know, to use. Basically, you know, we're very confident.
I think the market demand for the, you know, starting from Q3 to Q4, even next year. The module price also dramatically go down.
Let me follow up on your point. I think if you look at markets like Europe or Japan or China, for these markets, the cost of credit or interest rate for debt financing for the projects are coming down. There's excess liquidity in the market. It's actually improved. With the cost of solar modules and solar projects coming down as well, the yield for these solar projects are becoming more attractive. I think the issue you raised about, especially about, I guess, the tax credit market in the U.S., I think we don't have too much color on that. Just very generally, I think because this year, you know, with the economy, right?
A lot of the companies will have a reduction in profit and reduction in taxes that they would need to pay. Generally in this kind of market environment, the cost of tax credit will go up. This actually would make monetizing these tax credits more expensive for these solar projects. I think the flip side is that because, you know, you have the U.S. Fed, you know, with the monetary stimulus that's keeping interest rates very low. That could potentially offset some of these impacts. But I think that's a very specific issue to the U.S. end market.
Okay, great. I appreciate the color. Thank you.
Great. Thank you.
The next question comes from Alan Hon of JPMorgan. Please go ahead.
Hi. I have a question, follow-up question on costs. Firstly, congrats on a very stellar cost control in first quarter. Understand that, the second quarter production costs may go up a little bit as you are scaling down production. In assuming like we ramp up to full capacity in third and fourth quarter this year, I mean, how much more room like do we have on cash costs going down or further cost improvement on the cash costs versus that of the first quarter level?
Hey, I think, you know, to answer your question, if you look our Q1 cash cost is CNY 5. I think renminbi is around CNY 35. We believe, okay, for the materials, for the silicon metal powder, we all in long-term contract. We still have some room continue to improve, especially I think silicon metal powder, the price we see is continually go down. For the utilities, we don't think, you know, any more room to improve. The only thing is I think, we can improve is the salary and wages. Basically CNY 5, if we continue in Q3, Q4, we continue to improve maybe I think have like a 5% room to improve basically, you know, frankly speaking. It all depends on silicon metal powder continue to go down.
Silicon powder today, I think, account for almost, CNY 13.32 per kg, around $1.91 out of my cash cost of $5. Number one, cash cost.
Uh-
It is around, you know, account for 32.6%. It's actually only account for 28.7%.
Got you. Thank you for the color. Thank you.
Great. Thanks, Alan.
The next question comes from John Segrich of Luminus. Please go ahead.
Hey, guys. Just wanna make sure I've got the housekeeping things right. What is the total CapEx that you're expecting for 2020? How much of that is maintenance CapEx? Is there any remaining CapEx that has to be paid for the expansion in 2021 that we should be modeling? I've got two more follow-ups, if I can.
Actually, I think due to the COVID-19 situation and the impact to the market, we're actually controlling our finances very carefully and strictly. We're actually extending the payment schedule for a lot of our suppliers, particularly related to CapEx. For this year, the total CapEx is expected to be approximately $75 million-$85 million. Of that, about $15 million-$20 million is for, you could call it maintenance CapEx, but a lot of it is for project upgrades. The rest is mostly for project.
Okay.
For next year then there's another about $50 million-$60 million of CapEx relates Phase 4A.
Okay. Is that on top of any amounts that are included as payables for PP&E, just to be clear?
It's inclusive. It's within the payables.
Within the payables. Okay.
The payables are actually contractual payment obligations, but we are able to negotiate with our equipment suppliers due to the current market situation.
Okay. I know you gave a lot of figures kind of around percentages of everything, but I think you said electricity usage per kg was down about 7%. What are you kind of down to about per kg now?
We're around 66 kWh per kg today.
Okay.
So .
Was there anything in particular that allowed you to make that big sequential reduction? That's quite a big improvement.
It's really process optimization where, you know, we've optimized our process so that we could reduce our electricity usage relative that we've done in the past. Also the equipment. I think if you remember the Phase 4A projects now have either 72- or 80-rod reactors versus our older reactors were maybe for example 48- rod in the past, some of them. Just these larger reactors also have a more efficient usage of electricity. And for our front-end process as well with our new capital equipment.
Okay.
-electricity reduction.
Unit price go down.
Also our electricity cost came down as well.
Okay. Where is that now?
We cannot disclose specific numbers, but overall it declined approximately 10% around quarter-over-quarter .
Okay.
We can tell him the total you see per kg. The average is the electric consumption is 66 kWh, and our cost is CNY 11.75 per kg. Calculation by yourself the unit cost.
Okay. Last one. I know at the end of 2018 you guys acquired a subsidiary company, Daqo Investment, I guess.
Yeah.
I think you have CNY 18 million or CNY 16 million or had CNY 16 million to pay for that. What does that company do, and what was the point of the acquisition?
I think Okay, let me just reflect to you, okay? The Daqo Investment Company original is owned by the Daqo Group. The reason is because the company buy a piece of land, build it to I think one dormitory for our employee to lodge in. Okay? A building actually like the employee lodging, you know, facilities. At that time we need investment. We need to construction the building, we don't want touch the, you know, the business. Daqo Group, I think, invest the money in the investment company. I think in 2019, because we want to go I think domestic New Third Board, we call third exchange-
New Third.
Board. New Third Board. We have to change the Xinjiang plant company, Xinjiang Daqo New Energy Company, you know, 1% is selling to this company. This company also own 1% of the Xinjiang.
Yeah.
Our facilities. Okay? Later because we withdraw from the New Third Board, we buy back this company, okay, with the 1% ownership, plus the building, the employee building. That's why the total evaluation you see the CNY 60 million.
Perfect.
Are you talking?
Okay. Great. Helpful. Thank you. Okay. That's it.
Great.
Thanks, guys. Bye.
Thank you.
The next question comes from Colin Yang of Daiwa. Please go ahead.
Hi. Thank you, management. This is Colin from Daiwa. I got a follow-up question on polysilicon price. Mr. Zhang said that we expect a recover in price in third and fourth quarter this year, probably due to the recovering of global demand. On the other hand, our major clients, the wafer producers including LONGi, Zhonghuan, they were still in the middle of the price war of wafer. Wafer price is likely to keep dropping in the second half despite a recovery in global demand. Do you think it's still likely to see the polysilicon price goes up, even the wafer price will keep dropping? Do we feel a lot of the price cutting pressures from the wafer producers? Thank you.
Okay. To my concern is because I think LONGi, Jinko, the downstream major player used to take the advantage of that virus, you know, situation to zero their inventory. Beside that, they may be on the supply side, demand side, on the wafer side, the price continue go down. Push I think, you know, the silicon price continue to go down because We manufacture polysilicon. You know that. It's a chemical company. For example, if LONGi supposed to sign contract with us for April, should be signed the contract in March 20th. If they move to April 15th, so almost one month delay, so, you know, cost, the demand and the supply, you know, totally change the situation. That's why I think today the mono-silicon price go down.
You have to consider that if, let's say, the import silicon from OCI, from Wacker, almost, you know, become zero, then the domestic mono-silicon supply is there. It's not too much there, okay? Even though some player have inventory, but majority of their inventory is a multi-silicon. It is not unsellable, multi-product, okay? We believe as soon as the demand come back, the downstream module, majority right now, even I think 90% of the module is mono module. As the wafer capacity continue full capacity running, also expansion, we believe silicon price definitely will go up. Today, if let's say on today it is $7-$7.20 , how many, you know, silicon company can make a profit? You see, our SP is a little higher.
The reason because we're 95% our product is mono-silicon. Only 5% is multi-silicon. We even use partial, 50% of multi-silicon to produce our own product. Basically, if you looked at today's price, a lot of company, most company is lose money. Even Daqo, maybe, you know, Q2, you can calculation our gross margin may be deteriorated, you see. The bottom line maybe I think is up and just about, maybe about the zero, you know.
Understood. Understood. Okay. The second follow-up question is still about our financing expense because our total interest borrowing debt was just up like 38% year-on-year from 1Q 2019 to 1Q 2020. However, our interest expense was like up by over 200%. Understood Ming Yang was explaining that there was some partially because of higher banking fees. I want to learn if we can share the exact interest rate from 1Q 2019 to 1Q 2020. Thank you.
The interest rate currently is roughly 6% per annum on our debt balance. Actually for last year, I believe it was similar as well. The interest rates haven't really changed. Well, maybe it came up slightly because we have higher amount of longer term duration debt for our capital project which carries a higher interest rate.
I think the short term.
I see. Okay, good.
Yeah, the short-term banking loan, average cost is 5.5%. The long-term, I think fixed assets loan is around CNY 5.60 per annually.
All right. Thank you, management. That's all my questions.
I know. I think the banking loan total is around CNY 265 million. I think the temporary reason because you see we're in the rush pay payments on the Q4 Phase 4A, you know, projects. Step by step, as the cash continue flow from operating side, I think, you know, the interest expenses should be keep around like CNY 5 million.
5.5%.
5.5% , I think, per quarter.
I see. I see. Thank you.
Great. Thank you.
Thank you.
Next question is from Satyan Shaw, a private investor. Please go ahead.
Yes, gentlemen. How are you?
Hello.
The question I have is more due to the political tensions between the U.S. and China currently. I'm not sure if you're aware, but there is a new legislation going into the Senate today that basically would require Chinese companies to establish that they're not owned or controlled by the government, and that they would be required to submit to an audit that could be reviewed by the Public Company Accounting Oversight Board. If that legislation was to pass, how would that affect U.S. investors' ability to still invest with you guys here? What are your views?
I think, you know, first of all I'm not comment on PCAOB. You know, you ask, you know, what are they doing? In the history, I think, in 2009, 2010, if you know, look back, you know, in that 2010, you see, I think also some crisis, you know. A lot of Chinese company, I think from OTC, apply this to main exchange. Also, I think PCAOB also looking for worksheets from auditor. I think Chinese government at that time, I think opened certain number of public company to let PCAOB review. I think, you know, today, for example, like Daqo is almost listed in U.S. New York Stock Exchange 10 years.
-is, I think, thoroughly, I think, auditable and transparency. We're not afraid of that, basically, you know.
Okay.
We support any, I think, you know, we support any transparency because, you know, we are a public company, and we have to follow, you know, the law. No more comments on that, your question, you know.
Okay. No, that's fine. My bigger question is for the company in general. Over the next year or two, as the solar industry sort of recovers, as you've elaborated on, what does Daqo look like a year from now in your estimation as a company?
Today, we almost account for the market share, 15%, you know, on the silicon supply, on the PV industry, the upstream segments. We definitely is the key player right now in this industry. As you can see, the silicon imports from overseas, from this year, almost, you know, gradually were to zero. The Chinese silicon will substitute for the imports, the first. Second is if you look at the PV industry in the future, definitely is very optimistic. We believe this industry will continue to grow. Definitely, we also see all player, for example, the A-share company continue to expansion.
We will watch the market, and we will do our, you know, I think, you know, because we believe, you know, we were I think, you know, driven our efforts. Basically, we will look the market to see whether we will continue to expansion or not on the polysilicon side. Meantime, we're also looking for, you know, both, I think, domestic or overseas opportunities, you know. Basically, we also doing other, you know, for example, the, you know, special gas, you know, other projects, you know, to see continue to, you know, to increase our revenues, you see, and to, I think strategically to make, I think, Daqo more strong, to continue to growth on the revenue side and also on the cash, you know, cash statements.
Okay, great. Thank you, gentlemen.
Great, thank you.
The next question is from Robin Shao of BOCI. Please go ahead.
Thank you management for taking my question. My question is regarding about the capacity from the industry. Basically, a lot of factory is making same margin for the current price, but we didn't observe lots of maintenance from May. What do you see your competitors maintenance schedule? Were they focusing July or April or August? What's the calendar for this peers capacity plan?
Okay. Basically, I think if you look today, I think, you know, especially during the Q2, a lot of company, even Q1, you see the SP continue to go down. It's this industry already consolidation. In China, basically right now, the major five company is there. I think, besides Daqo, Tongwei, TBEA, right? TBEA, East Hope, and also.
GCL.
GCL. I think that's the major player there. If you look at those five players, I think, you know, New Horizon, because of the quality issue and also, the capacity only, I think, can achieve around 40,000 tons-50,000 tons . Also, they're going to go downstream, vertically integrated. Basically, in the future, I don't think they are the competitive in the solar silicon segments. GCL basically is a joint venture with Zhongneng . I don't think they will continue to expansion. That facility is around 40,000 tons right now running. Basically, the majority of supply to Zhongneng . Zhongneng also buy some from us. The only, I think, major three player is TBEA, Daqo and Tongwei. Today, on the quality side, we are almost 95% is mono-silicon.
Our competitors, I'm not mentioning, okay. Essentially, I think, other two, they also have new, I think, you know, projects, you know, new facilities just opened last year. The production is not stable, and also quality is not stable. I'm not saying go ahead, you can call them to dig on their inventory. Basically, we right now the inventory, you know, almost is zero. Okay. We sell whatever we produce. Basically, in this market right now, today's price is opportunity for consolidation, and I think also is good opportunity for our future. After maybe Q2, even, you know, half of Q3, I think the survivors will enjoy the market.
For maintenance, do you see a lot of factories which choose to have their maintenance plans in July?
No, I think some plants, we know that they also move to second quarter because second quarter right now, the selling price is so weak, you know. I believe, I think some is moved. Some still will be in, I think, September, October. The reason is because the maintenance, you know, for the winter. I think I only can say maybe right now 50% of the company is annual maintenance right now, happened in Q2. 50% will maybe occur in Q3, Q4, early Q4.
Okay. Thanks. My final question is regarding about the monthly supply-demand balance. From the mono-silicon products perspective, what do you see? What's the monthly supply and demand balance in the market? If you can, would you please share in a gigawatt basis also?
I think basically, you know, as the technology continue, you know, improve, you have to remember, I remind you that, per gigawatt wafer basically, per gigawatt, whatever, you know, the downstream product, the consumed silicon is continue to go down. Okay. If let's say two years ago, maybe consume 4.5 grams in our silicon per watt. You see, that's why the module price right now, the module cost, silicon is not number one cost right now. The number one cost is glass. Okay. Basically, we believe on a module right now per watt cost of silicon is around like 3 grams - 3.2 grams.
If you calculation, let's say, this year is around, let's say I think if you calculation based on the wafer capacity this year, I think it's around like 135 GW . Okay? That's will consume, I think, around 400,000 tons of silicon. Per month, I think it is around like 35,000 tons-36,000 tons every speaking. Right now, I think it may be around 30,000 tons-32,000 tons per, you know, per month. That's the demand side. The supply side, I think, basically because of the, I think, Q1, the COVID-19, you know, the COVID-19 virus it caused some small wafer plants shut down. You know, we are chemical company continue to running.
one of, you know, you know, beside our Daqo, maybe other silicon producer have some inventory there. LONGi, Jinko, when they in March come back, they consider, you know, they want to zero inventory. The wafer price go down, reduce, go down. That's why they push the demand, you know, go down. Supply still is there, push the price SP go down today, you know. Basically, I think solar wafer is around CNY 55-CNY 58 . I think this is the, you know, the, I think almost the bottom. I don't believe will continue to go down further.
Thanks.
Okay.
I have still one follow-up question about the inventory strategy from downstream. You've mentioned about Jinko and LONGi. They're trying to maintain very low inventory level for now, so they keep ordering for maybe two to three days. At what time point you think they will change that strategy? Could you please share any color on this?
I think, you know, maybe by the Q3, when the module and the market come back, I think the sale and the wafer demand is, you know, come back to normal. Not only besides LONGi and Jinko, because also other company like Shangji, Jinglong, Zhonghuan, all the companies running, the demand will be, I think, more. Definitely I think they have to you know, keep, accumulate some inventory. Otherwise, their supply will be interrupt, you know. We cannot I don't think they can keep like this way, you know. The reason is because right now, it's not too much other players is doing small. Maybe players right now cut their capacity.
When all capacity is running, then also the wafer capacity expansion continue to going on for the next year because people will foresee next year the potential market is there. I think it will come back at least, you know, one week inventory. The demand definitely will come back.
Yes. Thank you, management. I will pass on.
Great. Thank you.
The next question is a follow-up from Gary Zhou of Credit Suisse. Please go ahead.
Hello, management. Just a quick follow-up question. Notice that some of your key foreign polysilicon producers are currently under a suspension. Just wondering when do you expect we may hear further kind of final capacity exit from those companies? Thank you.
Welcome, Gary. You come back, you know, the question. Basically, I think, Wacker, you already hear that. I don't think, you know, they, the major, I think they focus on the semiconductor solar silicon . Maybe have some by-product continue to provide to the solar industry, but it's not too much. It's not, you know, number is not accountable. The only thing is I think maybe OCI, I think, Malaysia, right? Indonesia, Malaysia, I think have plants. As we know that Malaysia right now today we supplies LONGi the selling price around the CNY 720. We believe, okay, the Malaysia plants also is not competitive. Their capacity right now is around 30,000 tons. That's the only right now the overseas I think capacity is there. Gary, does that answer your question?
You also going to, I think, the Silicon Association, they have every month the import figure, China import silicon figure, you know, there. We can give to you if you want.
Yeah, okay. That's quite helpful. Thank you very much.
Great. Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Kevin He for any close remarks.
Thank you everyone again for participating today's conference call. Should you have any further questions, feel free to contact us. Thank you and bye-bye.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.