Good day, welcome to the Daqo New Energy fourth quarter and fiscal year 2019 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. 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 fourth quarter and fiscal year of 2019, 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 fourth quarter in the fiscal year of 2019. After that, we will open the floor to Q&A from the audience.
Before we begin the formal remarks, I would like to remind you that certain statements on today's call, including expected future operational and financial performance and industry growth, are forward-looking statements that are made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement. Further information regarding these and other risks is included in the reports or documents we have filed with or furnished to the SEC . 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. Also, 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.
Thank you, Kevin. Hello, everyone. Thank you for joining our conference call today. We are pleased to report an outstanding quarter to close out the year in which we delivered strong operational and financial results. Having completed the new 35,000 metric tons phase IV-A expansion project at the end of the 3rd quarter, we quickly ramped up our phase IV-A project in Q4 and hit full capacity in December 2019. We completed the ramp-up progress months ahead of schedule, and we're able to generate outstanding operational results across all key metrics, including production volume, manufacturing cost, and the product quality. I would like to thank our entire team for their hard work and dedication. We produced 16,204 metric tons in Q4 2019, an increase of 72% compared to Q3.
Furthermore, we successfully reduced our total production cost to CNY 6.38 per kg during the quarter, a decrease of 8.5% sequentially and below our previous target of CNY 6.50 per kg. With our additional capacity fully ramped up, we saw significant benefits from economics of scale and manufacturing efficiency. For example, we reduced energy-related costs by more than 10% quarter-over-quarter, aided by significant reductions in per unit energy consumption. We also saw improved raw material utilization efficiency. In terms of operational synergy, per unit labor costs reduced by more than 20% compared to Q3, and depreciation costs per unit also declined significantly. In terms of production quality, approximately 81% of our production during the quarter were high purity mono-grade polysilicon.
This is exceptional since we were ramping up and optimizing phase IV-A production in Q4. It is typical to have variability in quality during the equipment optimization process. As a result of a reduction in manufacturing cost, our gross margin for the fourth quarter increased to 29.5%, an 800 basis points improvement over the third quarter gross margin of 21.5%. Our EBITDA improved to $45.4 million during the quarter, a sequential increase of 130%. Adjusted net income increased to $24.5 million, up from $9.5 million in Q3. We are proud of our financial performance and believe it reflects the capability of our company now, with phase IV-A at full production capacity.
Based on our current estimates, we expect to run our facilities at full utilization during the first quarter of 2020 and produce approximately 18,000 metric tons to 19,000 metric tons of polysilicon. We are also making progress in cost reduction by further improving operational efficiency and maximizing economics of scale. We expect our production costs to be continue reduced to approximately CNY 6.10 per kg in the first quarter of 2020. At the same time, we will continue to improve product quality and expect mono-grade polysilicon products to account for approximately 90% of our sales volume during the first quarter of 2020. 2019 was a challenging year for China's domestic solar PV market due to the delayed announcement of the subsidy policy last year.
Newly added solar PV installations in China during the year came in at approximately 30 GW, significantly below the market and the government's original expectations of 40-50 GW. However, a draft of subsidy policy for 2020 was released in late January this year, and is expected to be finalized sometime in March or April of 2020. When combined with some delayed projects from 2019, we expect newly added installations in China for 2020 to be approximately 40 GW. Demand from overseas markets is expected to grow healthily in 2020 as overall costs fall further and grid parity is reached in more and more countries and regions. With China's domestic market expected to recover and overseas demand continuing to grow, we believe global solar PV demand will exceed 140 GW in 2020, a significant increase from 2019.
Towards the end of 2019, we saw the market share for multi-grade polysilicon products shift meaningfully towards mono-grade polysilicon products. While mono-grade polysilicon continues to be in high demand with stable pricing, demand for multi-grade products wins, with prices dropping significantly, while we are ideally positioned to benefit from this shift towards mono-grade polysilicon. This will adversely impact some of our competitors who produce mostly multi-grade polysilicon products. At the same time, we are seeing a number of major competitors shutting down their operations, exiting the market, and laying off employees due to significant financial losses and their uncompetitive cost structure. We believe this trend will continue going forward unless ASPs can recover to a healthy level for our competitors to continue production.
In order to limit and contain the spread of COVID-19 coronavirus disease in China, the government implemented strict controls and policies starting in later January this year. That had an adverse impact on the logistics and supply chains of many companies in the manufacturing industry in China. We immediately set up a crisis response task force led by senior management team, and quickly began rolling out initiatives to ensure business continued, including a detailed assessment of our supply chain and logistics, and immediate procurement of critical raw materials, and plans to allow employees to return to work, which resulted in uninterrupted production and full utilization during this challenging period.
We are pleased to report that with our team's dedication and strong support we received from raw material suppliers and logistic partners; we were able to remediate any impact on production, sales, and shipments resulting from the outbreak and related government control. We believe mono-grade polysilicon supply and demand balance will improve meaningfully in 2020, driven by the aggressive capacity expansion of mono wafer producers and limited new polysilicon production capacity coming online, as well as our competitors shutting down capacity and reducing utilization. During the first quarter, we are seeing robust demand for mono-grade poly from our key customers with improvements in ASPs every month, which we believe is likely to continue going forward.
Combined with our anticipated lower production costs, we believe the 2020 Q1 gross margin can improve compared with Q4 2019. I'm confident that we will continue to benefit from the shift from multi-crystalline to monocrystalline technology, resulting in robust demand and the pricing for mono-grade polysilicon. We expect to produce approximately 18,000 to 19,000 metric tons of polysilicon and sell approximately 17,500 metric tons to 18,000 metric tons of polysilicon to external customers during the first quarter of 2020. For the full- year of 2020, the company expects to produce approximately 73,000 to 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 fourth quarter and fiscal year 2019.
Thank you, Longgen, and good day, everyone. We appreciate you joining our conference call today. I will now discuss the financial performance of our fourth quarter and fiscal year 2019. Revenues were CNY 118.9 million, an increase of 42% as compared to CNY 83.9 million in the third quarter of 2019. The increase in revenue was primarily due to higher polysilicon sales volumes, which were partially offset by lower ASP. The company produced 16,204 metric tons and sold 13,291 metric tons of polysilicon during the quarter. The difference between production volume and sales volume was primarily attributable to an increase in finished goods inventory associated with the doubling of our production capacity in December 2019, when compared to the third quarter of 2019.
The majority of which were shipments in transit to customers. There is also an increase in the amount of polysilicon utilized for the production of silicon seed rods, which is a raw material used in the polysilicon production process. Based on our current production capacity, we utilize approximately 500 tons of polysilicon for the production of silicon seed rods per quarter, which is reflected in our guidance for the first quarter of 2020. Gross profit was CNY 35.1 million, an increase of 94% compared to CNY 18.1 million in the third quarter of 2019. Gross margin was 29.5%, an increase of 800 basis points compared to 21.5% in the third quarter of 2019. The increase in gross margin was primarily due to lower production costs.
Selling, general, and administrative expenses were CNY 9 million, compared to CNY 8.2 million in the third quarter of 2019. The increase was primarily due to higher shipping costs as a result of higher sales volume. SG&A expenses during the quarter included $4 million in non-cash share-based compensation costs related to the company's share incentive plan. Research and development expenses were CNY 1.2 million, compared to CNY 1.2 million in the third quarter of 2019 and CNY 1 million in the fourth quarter of 2018. R&D expenses can vary from period to period and reflect R&D activities that took place during the quarter. Income from operations was CNY 30.1 million, an increase of 240% compared to CNY 8.8 million in the third quarter of 2019.
Operating margin was 25.3%, a substantial increase compared to 10.4% in the third quarter of 2019. Interest expense was CNY 3.9 million, compared to CNY 2.6 million in the third quarter of 2019. The increase was primarily due to an increase in bank loans. New income attributable to Daqo New Energy shareholders was CNY 20.1 million in the fourth quarter of 2019, compared to CNY 5 million in the third quarter of 2019. Now, I would like to provide an update regarding our tax rate and tax expenses for the fourth quarter of 2019. Our Xinjiang Daqo subsidiary is a high-end new technology enterprise, which is taxed at 15% tax rate at the local subsidiary level.
For the quarter related to the completion of our new phase IV- A project, we took advantage of a new tax policy in China, which allows for a one-time depreciation deduction for certain new capital investment items. Under this new tax policy, we took a $20 million one-time deduction for tax purposes. This would reduce our 2019 local taxable income by $20 million and reduce $3 million in cash tax payments for the tax year of 2019. However, under GAAP accounting rules, it would require us to record an additional $1.86 million in tax expenses related to this one-time fixed asset deduction. Excluding the impact from this accounting treatment, our GAAP net income for the quarter would have been $22 million.
Earnings per basic ADS were $1.45 In the fourth quarter of 2019, compared to $0.37 in the third quarter of 2019. Non-GAAP adjusted net income, which excludes non-cash expenses related to share-based compensation, was CNY 24.5 million in the fourth quarter of 2019 compared to CNY 9.5 million in the third quarter of 2019. Non-GAAP adjusted basic EPS was $1.77 in the fourth quarter of 2019 compared to $0.69 in the third quarter of 2019. EBITDA from continuing operations was CNY 45.4 million compared to CNY 19.7 million in the third quarter of 2019. EBITDA margin was 38.2% compared to 23.5% in the third quarter of 2019. On the company's financial condition.
As of December 31st, 2019, the company had CNY 114.4 million in cash and cash equivalents and restricted cash compared to CNY 68.2 million as of September 30th, 2019. As of December 31st, 2019, the notes receivable balance was CNY 5.6 million compared to CNY 4.3 million as of September 30th, 2019. As of December 31st, 2019, total bank borrowings were CNY 280.1 million, of which CNY 151.5 million were long-term borrowings compared to total borrowings of CNY 248.8 million, including CNY 163.5 million of long-term borrowings as of September 30th, 2019. For the 12 months ended December 31st, 2019, net cash provided by operating activities was CNY 181 million compared to CNY 95.6 million in the same period of 2018.
For the 12 months ended December 31st, 2019, net cash used in investing activities was CNY 261.8 million compared to CNY 164.7 million in the same period of 2018. The net cash used in investing activities in 2019 and 2018 was primarily related to the capital expenditures on our Xinjiang phase III-B and phase IV-A polysilicon projects. For the 12 months ended December 31st, 2019, net cash provided by financing activities was CNY 102.3 million compared to net cash used in financing activities of CNY 86.7 million in the same period of 2018. That concludes our formal remarks. Operator, let's begin the Q&A session.
We will now begin the question-and-answer session. To ask a question, you may press star then one 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 two. At this time, we will pause momentarily to assemble our roster. The first question comes from Philip Shen of Roth Capital Partners. Please go ahead.
Hi, everyone. Thanks for the questions, and congratulations on the strong execution. In your prepared remarks, you mentioned that pricing has improved each month this quarter. I was wondering if you could talk through how much things have improved, perhaps, how you know, what your expected ASP might be for Q1, and then what your expectations are for pricing for you specifically as we get through the year by quarter. Thanks.
Okay, Philip. I think, for the ASP in Q4, our ASP is around CNY 8.77. I think, excluding the foreign exchange rate change, we see that January, the ASP is a little different, you know, down. February, you know, dramatically increased 3%-4%. March right now, the price still not determined, but we believe we're, I think, stable, maybe same as the Feb February. We think, the ASP for Q1 was slightly high or same as Q4 last year.
Great. Thank you, Longgen Zhang. As we get through 2020, how do you think about the ASP for Q2 and Q3?
Okay. I think, as I said, I think at the supply side, I don't think, you know, any more new capacity will come in. In the meantime, because of the selling price, ASP is so lower, and a lot of, you see our competitors, including the Chinese producer or even some foreign producer, they maybe shut down their capacity or factory. We see the supply side is not to continue to increase.
On the demand side, I think, you know, for even though the COVID-19 epidemic maybe will affect the demand side globally, but we believe, I think, the wafer capacity expansion in China is very quickly also so big. As I can tell you, China right now, the downstream from wafer cell, module, almost, right now, 100% come back today. What I say is maybe I think the price we will see slightly come back in Q2, but definitely Q3, the price will come back, you know, I think maybe around 5%-8%.
Okay.
Overall, this year, I think the ASP maybe will be around like, you know, what I think is around $9 .
Okay, great. Thank you, Longgen. Shifting to your cost structure, perhaps we could go through the same process for how you expect your cost structure to trend. I think you mentioned Q1 cost structure all-in is about CNY 6.10 per kg. What do you see for Q2 and then Q3 and maybe the average for the year?
Okay. In terms of our cost, I think we're showing very good trends in economies of scale for our manufacturing, especially in energy reduction and also in, for example, labor cost savings, as we discussed. For Q1, we are seeing costs about $6.10. I think for Q2, it could probably go down slightly lower too as well, probably in the $6 range. Currently, as of today, we think the second half could also be in the $6 range. Probably on average, around $6 for this year as our cost target.
Okay, great. Thanks, Ming. You know, can you talk about what you need to see for phase IV-B? I know, you know, there's some uncertainty now with COVID-19 outside of China and what that might do to demand, even though the supply situation seems very healthy in China. What do you what needs to be lined up for you guys to make the decision to do the expansion of IV-B? And when do you think the timing of that decision could be?
Okay, Philip. I think first of all, we still want to, you know, to optimize our IV- A production capacity running and to improve our balance sheets. So far, we haven't made any decision on when we're gonna start IV- B. Definitely, I think we will consider maybe the second half of this year.
Okay. That's helpful, Longgen. Thank you. One last one, and I'll pass it on. As it relates to the shipments that you expect for 2020, given all the contracts that you have, what % of the 2020 shipments have you already booked?
I think, basically right now, our long-term contracts, we already booked I think 72%.
[crosstalk]
We still have three customer right now talk to us, want to sign long-term contracts. Our Actually our capacity right now is limited.
If those three sign up, what is the timing of when those three could sign up? Also, incrementally, how much of that remaining 28% capacity or shipments could they take up?
Okay. We maybe didn't have the capacity to run, to sign those rest of, you know, right now the major three clients. I'm not, you know, named, one of also is bigger. We maybe just sign one, you know, one or two out of those three. Basically, we maybe signed around like 80%- 90% of capacity, whole capacity. Still leave 10% for the market.
Okay. Great.
For signing out the clients. Yeah.
Right. You wanna have some exposure to the spot market.
Yeah.
Okay. Thank you. I'll pass it on.
Great. Thank you.
The next question comes from Gary Zhou of Credit Suisse. Please go ahead.
Hi, thanks for taking my questions. Gary from Credit Suisse. I have two questions. Firstly, as management has mentioned that, this year, we may see a lot of capacity expansion from your downstream wafer customers. Do you think, let's say, by the end of this year, the poly industry would still have enough mono-grade poly to be supplied to those mono wafer producers? Secondly, regarding your just further cost reduction in first quarter this year, just want if the management can elaborate a little bit more, is it from lower energy cost or any other reasons? Thank you.
Okay. Gary, thank you. I think the first question, basically, if you look at China last year, total silicon consumption on the poly side, poly side, I think solar segment is around 460,000 tons, of which I think 140,000 tons is import from abroad, major from OCI and Wacker. I think this year, I think the import, frank speaking, import polysilicon maybe will be reduced dramatically. Also, if you look at China, I think the major supply we already see, I think top maybe five major supply. One is Daqo, one is TBEA, Tongwei, plus Xinte and also New Hope. Basically, the supply is there.
Also, your question is, you see, because we also see a lot of, I think right now, the wafer capacity expansion, declare the investment is around We already calculation maybe right now based on announcements, by the end of this year, I think the mono wafer capacity may be around reach to 150 kW. You know, whether they really can be their capacity achieved or not, we don't know. Definitely in Q3, Q4, momentarily, I think, the supply maybe we should supply, you know, supply compare with demand. That's all the market mechanism. If let's say, the demand is larger than supply, the price go up, maybe, you know, some small producer will continue to come back. It all depends on, I think, the demand and supply.
I believe, I think in today, the situation, the ASP maybe will bounce back to $ 10 or even let's say $ 11. I don't think it will be above further. For this year, definitely I think Q3, Q4, the polysilicon price maybe come back. Second question is about our Q1 cost will continue to go down maybe to $ 6, around $ 6. I think the major things, if you look our Q4 is around $ 6.38. Only I think, one and a half months with full capacity running. Basically, I think Q1, we were full capacity run, you know. I think scalability of the economics will be fully retrieved. That's first. Secondly is also the, you know, we maximize our economics of scale.
That's also will reduce a lot of variable costs per units. The most important for IV-A capacity running, because the efficiency is totally increased compared to all the, you know, existing production line. For example, the potential, you know, consumed the electricity utilities will go down. Also the conversion ratio also is go down. All these will improve and help us, I think, to achieve the targets. Gary, did that answer your question?
Yeah. Thank you.
Thank you.
Yeah, yeah. Thank you. That is very, very helpful.
The next question comes from Allen Wang of CICC. Please go ahead.
Hello, Mr. Zhang. Thank you for taking the question. We got one question on coronavirus impact and another one on capacity expansion. For the impact, as we know, the logistics may be affected by some government control. How is the inventory level of our company, and how do you think about the supply chain constraint of silicon products? Will the higher price of silicon products affect our cost level in this quarter? The second question, as you mentioned, maybe the company is considering about IV-B project now. Maybe after IV-B, which part do you think in China may provide lower electricity price for future polysilicon expansion? Maybe can share some ideas of you. Yeah. Thank you.
Okay. Allen Wang, thank you, from CICC. I think, first of all question, I think, you know, during this, I think, epidemic, I think, you know, the tough times basically were already passed. I think, in later January, it's very tough because the government put a lot of restriction on the shipments, on the employee, you know, return back. It's not only, you know, for our company, but also for a lot of shipping company. Basically, you cannot find the shipping, you know, facilities. Also a lot of supply company not come back to work. They're not like chemical company, you know. Basically, you know, we got a lot of challenge.
We, the good thing is before Chinese New Year, we inventory, I think at least 20 to 25 days raw materials. For example, like MGSI, you know, we inventory almost 20 days. I think good thing is we signed the long-term contract with at least three suppliers for each raw, the major raw materials. For example, MGSI, we're working with [audio distortion]. That's one of A-share companies. They also located in Shenzhen. They add, you know, four new production line special for us to provide every day around 200 tons MGSI powder to supply us. Also, like the package, we one by one, we solve those issue.
Basically, right now today, almost right now, I think the state government right now, announced the news asking for all the manufacturing, the company, you know, to come back to work. Basically, right now, I think, everything is smooth. We already see a lot of supply come back. I don't think in China, if you can see the cases we found right now, every daily increase actually is lower. In China, the situation actually is really, I think, improved. I'm more worried about maybe in the future, the global situation maybe will hurt on the demand side. I think, you know, from now on, I don't think the coronavirus will be affecting, you know, too much, our industry.
Maybe will affect some the downstream, like wafer, cell, module production capacity, but it's not too much. You can see LONGi announcements. I think that's the first question. Second question to you is about the phase IV-B, I think I answer that, I think, Gary. Basically, right now we want to, you know, focus our phase IV-A optimization of phase IV-A capacity. We are currently we're not considering, you know, phase IV-B. Of course, we already see, I think one of our competitors, I think, expansion 35,000 tons in Sichuan Province. I think a major thing is, you know, to a new expansion on the polysilicon segments. One is the quality. You have an advanced technology to keep, I think, high-quality products. Secondly is you have to run at lower cost.
Of course, the energy is one of the key factors. What I believe is today, maybe only if you're not a self, generate power. Today maybe two area. One is Mongolia, one is Xinjiang, is maybe good place to continue to invest. Secondly is we also need IR globally, because not only China, but also globally, we think still have some place maybe, you know, can have lower utility price is a fit for us. We always keep an eye looking on that. For us, our strategy because we think our strong experts still are on the polysilicon side. We still think in the future, we will do the phase IV-B. The only thing is when we're going to do, the most important is the place where we're going to select.
Thank you, Alan.
Yeah. Thank you. That's very helpful. Yeah. Thank you.
The next question comes from Alan Hon of JPMorgan. Please go ahead.
Hi. This is Alan from JPMorgan, congratulations on the excellent operation in 4th quarter. I have two questions. The first question is regarding our potential CapEx plan for this year. Assuming we are not building phase IV-B yet, how much residual CapEx from phase IV-A would be kind of focused in 2020? At what point would management think about dividend, I mean, and stuff like that? The second questions I have is I want to ask management about like generally speaking, I mean, I know Daqo has a excellent record in achieving high mono-grade product. What about the other competitors in China? Are they at a similar level as Daqo? These two are my questions. Thank you.
I think you wanna answer the question.
Yeah. Hello, Alan. Thank you for your question. Regarding our plan for CapEx, our total CapEx for this year is currently planned for approximately $100 million-$120 million. About $80 million-$90 million will be used for the remaining payments of our phase IV-A capacity expansion based on our payment plan and payment schedule. About $15 million is in the new R&D project, which should help our manufacturing efficiency and also improve our quality. About $10 million-$15 million is the regular maintenance CapEx. That's the overall CapEx plan.
In terms of dividends or possibly, share be purchased by the company, this is something that we would look into, most likely in the second half of this year, you know, when we expect our cash flow and cash balance to improve materially compared to what it is today.
For your second question about the product quality, we believe, I think, you know, I think Daqo is the first one produce N-type silicon. I think approved by SunPower, then also right now approved by the major producer right now, LONGi, JinkoSolar, I think other company. If you look at our quality, we right now Q4 because of ramping up phase IV-A, our mono silicon percentage is 81%.
We think first quarter we will reach 90%. I think you can do I'm not gonna comment, you know, on the other company, how much percentage is their mono capacity. It all depends on right now also the downstream, the wafer producer. Some wafer producer, maybe, you know, buy our silicon then combine with other people's silicon, you know. Basically, we definitely can be 100% replace the import polysilicon, and it is the number one, I think, the best silicon, I think, in China, among the Chinese producers.
Got you.
Alan?
Thank you.
Great. Thank you.
Got you, and, thank you very much.
Okay. The next question comes from Colin Yang of Daiwa. Please go ahead.
Hi. Thank you, Mr. Zhang, Mr. Yang. It's Colin from Daiwa Securities. I got a few questions regarding our operations. The first one will go for our the fourth quarter external sales, goes for 13.2 tonnes, and our production was about 16.2 tonnes. The sales rate was only be around like 82%, which is much lower than the average of the three quarters, which is all above 95%. What is the why it's dropped like over 10-15 percentage points?
The second question is regarding our average selling price. Based on my calculation, the full- year 2019 average selling price is like around CNY 9.1-CNY 9.2, and it applies for like over 30% a year-on-year drop. As you can see, the market price for the mono-grade polysilicon was only dropped by like 9%. For multi-grade polysilicon dropped by 27%. My question is why our year-on-year drop on ASP is much more close to the multi-grade market price drop because our mono-grade portion is like already over 80%. Thank you.
Hello, Colin, thank you for your question. Regarding our external sales volume relative to our production volume. If you look at our production capacity or volume, daily volume at the end of the third quarter, as of September 30th, was about 9,000 tons per quarter, right? At the end of December, you know, with our full month December production, we're at, you know, if you look at our current number, 19,000, 18,000-19,000 metric tons per quarter, right? Our production on a daily basis practically doubled, right?
At the same time, if you look at the assuming the same number of days in inventory for finished goods and in terms of shipments in transit, this would necessitate a doubling of finished goods inventory in that period. The difference in the sales volume that you're seeing in Q4 is reflective of what happened when you have such a significant jump in production volume in a short time period. I think this actually, I would say generally would be very abnormal for any other manufacturing company. Okay, that's the bulk of the impact. A smaller impact was from the polysilicon utilized for the production of silicon seed rod, right?
For example, in third quarter and earlier, we were, we would only need about half the amount of what we needed today based on capacity. In planning for our production capacity increase, we actually If you think that it takes about a month or more, maybe up to six weeks to plan and produce the silicon seed rod that we would need it to be used. We actually had to utilize more polysilicon for the production of silicon seed rod during Q4 than the normal amount that would normally require. The combination of these both of these effects is what caused the difference. If you move forward to Q1, right now our production levels between end of 2019 versus end of Q1 2020 is very much similar. You're no longer seeing that difference in sales volume versus production volume. That's basically the reason.
Okay. Also, I think the second question is for the ASP, right?
Yeah.
On the news release we say, you know, 81% is mono-silicon. We say the production, the output. We total Q4, we manufacture 13,148 tons. For the sales side, we recognize the revenue, we're selling is total is 11,780 tons. On the total, I'm sorry. On the production side, the total is 16,000, 204 tons, 4,000 tons. Of 16,204 tons, of which 81% is mono-silicon. That's the 13,147. On the revenue recognized selling side is 13,291 tons, of which the mono-silicon is 11,780 tons, is around 89% on the revenue recognized side. For the multi-silicon is 11%. The ASP is $ 8.77, including the adding value tax. For the mono ASP is around $ 8.99. For the multi-silicon is around like $ 7.10.
I see. I see. Thank you. My next question will be around our production cost. As you mentioned, we expect the full- year production will be lower to $6 per kg, which is very, very low because in Chinese term it's going to be like 42, 43, basically the lowest in China. If we assume the power tariff with the Xinjiang government remains unchanged at $0.2, would you mind elaborate more details about how can we achieve the around the 15% year-on-year drop to $6 production cost? Thank you.
I think at basic, the production cost of goods sold, I think continue go down is favorable from the IV-A project, the IV-A capacity running. In Q1 we reach the full capacity running to reach the scalability of economics. I think a lot of costs per kg will be per unit will be continue go down. For example, like labor. Without IV-A our people is around 1,200 people. Right now, with IV-A we're only 1,800 people. We just add 600 people. Also, you see the IV-A, the new capacity, the efficiency is higher. For example, per kg consumption of the utility, the power also is lower.
It's around like 63 to 65 kW, kWh. You know, compare with existing the plants, it's around like 68 kWh. All these will help. Of course, because of we I think at full capacity running the IV-A, we have attracted I think a power price from the, you know, based on the investment agreements with the local, I think, the supply, electricity supply company. I think all these add together. Basically, one is the efficiency, one is the scalability, also the energy side, the price. I think this is help us to continue to improve our cost.
Thank you. Thank you, Mr. Zhang. My last question, as you mentioned in the PPT you slide, we expect the 2020 China installation to be around 40 GW, globally 140 GW. As you can see the ongoing outbreak, which is out, especially out of China, We, don't know whether it'll be out of control or not. Do you think there is gonna be any, you know, downward revision risks to lower our global installation target to below 140 GW? Thank you.
I think for the whole industry, if you're talking about the final product module, I think that China definitely will be I'm very, you know, optimism. The reason is because, for 2019, we still have like, you know, legacy projects, now 15 GW. The government right now is already starting to, I think, subsidize CNY 1.5 billion, I think scheduling to doing that. As you can see there, the bidding project is around 20 GW, another CNY 500,000 is for the residential distributed in our projects, 5-7 GW. Basically, I think, for the module side, China definitely, I think, will reach 40 GW, even let's say you conservative to reduce to 35 GW. Also, let's say for globally, because so lower module price today.
For example, the module per watt selling globally right now only like $0.20. The U.S. because of tariff may be selling $0.45, $0.48. We see a lot of about right now, about 1 GW this year, maybe more than 15 countries. I think, because of to reach grid parity, such a lower, I think, cost, I think, definitely the global market is demand is hot. Of course, I think, the global market maybe will be affect by the, you know, the coronavirus epidemic, you know, to slow down a little. I don't think, you know, that will be affect too much. That's first. Secondly, to us, we manufacturing polysilicon. Our major clients is the wafer.
Basically, if you look at today in China, the wafer capacity expansion is all online right now. Is a lot. I just mentioned that maybe by the end of this year, the wafer, only just as a wafer, a mono wafer capacity maybe reaches to, you know, I think around 150 GW. For this year, I say the shift term, I think the demand for polysilicon is already laid in there. I don't think, you know Down there is a module, demand and supply maybe should appear in, you know, fluctuate a bit. The demand for polysilicon is strong. The supply side, I don't think any much there. Of course, I think, maybe, you know, other company right now will invest money and continue to expansion on the polysilicon side.
Polysilicon is chemical industry. You have need to put a lot of capital into it. The construction period is at least one year. I think maybe by the middle of next year, maybe some new capacity will come out, come in. To me, I think within one and a half years, definitely the polysilicon price will slightly go up. I do not hope the polysilicon price goes back to more than, let's say, $12 per kg. That will be, I think, maybe stimulate some already closed down capacity, old capacity comes back. To me, I'm very optimistic on the price of the polysilicon, especially for the mono-grade polysilicon for this year.
[crosstalk]
Okay. Thank you very much. That's all my question.
Okay. Thank you.
The next question comes from Min Zhou of AllianceBernstein. Please go ahead.
Hello. This is Min Zhou here from AllianceBernstein. Thank you so much for taking my question. I have three questions. The first one is a very quick follow-up on the point that you made that 90% of your order is already pre-booked by the customer and 10% is leaving to the spot price. My question is for the 90%, the price has already been set or is also based on the real time market price? That's the first one, follow-up.
The second one, I want to hear from your perspective about the supply side, as you have mentioned that the overseas competitors there are accelerating the capacity exit. We have seen like Korean makers, OCI and Hanwha, they have already announced that. How about Wacker? Do you foresee them to, like, exit the market anytime soon, or you think they still need to wait and see? This is number two. Number three is on your cost side. Can you give us some updates about the electricity cost arrangement with the local government and also with the local power suppliers. Thank you.
Okay. I think for me, for your first question, I think maybe you're some misleading. We say we already signed long-term contract today is around 72% for this year. We also have available a potential right now negotiation three clients. Maybe we will select one of them or two of them. We will maybe we're assigned to 90% our full capacity. Okay? Those long-term contracts, not only this year, maybe next year. Also extend to next year. We will leave 10% cushion there. Is that first I'll answer your first question. Second question about the supply side.
Yes, because of the ASP continue to go down, and a lot of producers, both China and abroad today, basically, you know, if the production line, I think a small production line, capacity, a small capacity line today, the cost is higher, it's not efficiency, plus the electricity, you know, utility price. Basically, you know, even China last year, maybe around 25 polysilicon producer is there. Right now, maybe only 13, but maybe only five right now producer is existing there. I'm not comments, you know, but other company, OCI already declare, I think they will shut down the Korea plants. I'm not going to, you know, comment on Wacker because Wacker is a good company. It's a very, you know, wonderful company.
They have diversified business and definitely they, their major technology, and the focus on the semiconductor. For the solar silicon, I don't think, you know, maybe up to today, I don't think they have too much advantage on the cost and also the quality side. I'm not going to forecast whether they're going to shut down or not. I don't know. I think for the third question, basically on the cost side, I just, yeah, I think, you know, mention that we signed the contract with the local, I think, grid supplier, which is confidential.
If you want to know exactly price, the utility price, you can see our announcements. I think, filing with SEC, you can find out. I'm not gonna have the to say that in the conference. Definitely, I think the utility with our big investments and the contribution, the tax employee to the local city, and definitely, I think the local grid supply, the power supply gave us very attractive, I think, the power price. Thank you.
Okay. Thank you.
The next question.
Okay. Thank you.
The next question comes from Robin Xiao of CMBI. Please go ahead.
Hi, management. I have two questions. The first one is regarding the mono-grade polysilicon supply. Given that the Korean player is exiting this market, where do you see the overall supply volume of mono-grade product in China? Given if the price will bounce back at a very quick speed, say for example, like Q3 will bounce back to $ 11 per kg. Do you think the Korean player will return to this business?
I think, Robin, to answer your question, first the question about the mono silicon, I think the quality. Basically, the most important silicon import is polysilicon from abroad, major from OCI, Wacker in the history. Majority of they are, I think 80%- 90% is the mono. I think used to mono wafer manufacturing, okay? In China, I think I'm not top of five, maybe the mono silicon percentage around 60%- 90%, you know, maybe New Hope is a little lower. Anyway, I think, you know, still is a technology know-how, the quality. Some company, maybe They still can increase the capacity of mono polysilicon, but they cost a lot. They need and consume more power.
You have to, at a lower cost, produce the high-quality products. I think that's very competitive. I think. To answer your question, you know, this year, if you look at the whole demand, I think, the ending, the end products, the module, let's say 140 GW. That's maybe around, I think, for the mono side, I think mono maybe more than 90%. I think for the mono silicon, maybe need at least 350,000 tons to maybe, I think 380,000 tons there. Between the mono silicon and the multi-silicon, actually sometimes is blurred.
The reason is because some company maybe, you know, will use our high good quality, I think mono silicon, then, you know, mixing a small portion of multi-silicon, okay? We don't know the downstream, okay? Basically, what I think, the demand is there, is around like 350,000-400,000 tons of mono silicon. If you consider right now, if the OCI only Malaysia plant, 20,000 tons there, I cannot project right now at such price, you know, $8.77, how much Wacker will supply. Definitely, I don't know. I think the demand and supply are there, okay? To answer your second question, whether the silicon price will go back to $11, I don't think so.
The reason is because, you know, I don't want do that. I think maybe momentarily we go to $ 11, $ 12, I still think the price can little stable, between, I think, $ 9 to $ 9.50 to $ 10.50. I think that's reasonable, I think, for the industry to healthy and, you know, encourage, you know, the industry to put more R&D, put more money into the improve technology, improve the quality, continue to expansion to meet, you know, the demand side. Basically, I don't think, you know, even let's say, back at $ 11, $ 12, some company will come back. Definitely for the small capacity production line, definitely will shut down for longer, forever.
Only thing is maybe encourage you know, some company maybe, you know, to speed up expansion. Okay. That's why we also were to certain time in the second half of this year, we will weigh all the facts, you know, when and where we're going to invest, you know, expansion at full beat. Thank you, Robin.
Thank you, Longgen. I still have one more question regarding about the pricing spread between mono and multi-grade product. Whether you see the spread will enlarge further in 2020, and in the long run, if there is limit demand for multi-grade products, would that be a cost instead of a product sale to your business?
Okay, first of all, you know, even like us, we today run Q1, maybe around 90% is mono. We still have some products is multi. Okay. If you want to reach the 100% mono, your cost is a lot. It's not cost-effective. Let's say even Wacker and higher with, you see, with most advanced technology, but they also have the multi-silicon produced. Okay. First to answer you that question. As the industry continues shift to mono, I think module, yes, definitely I think still like around 90% is mono. Still have 10%, at least 10% on the multi side. That's why because the multi-silicon, the supply is still there. The price is lower, such lower, is around like $7. It's almost, you know, $2 difference there.
Maybe, you know, the lower cost, even though is not efficiency, but still, you know, have the market there, the niche market, for example, the rooftop. Okay. Basically, I say, you know, you cannot eliminate all the multi-crystalline module market. You still have to have some products still there. The only thing is, if let's say like us, if you the mono polysilicon percentage, okay, if below, let's say, 60%, then if you look right now, the price difference is there. The ASP will dramatically go down, how can you profit? Right. Your gross margin will be terrible. You. It's not competitive in the industry. If you in the top, you have to, I think, keep the high percentage of mono polysilicon at, I think a reasonable cost-effective, lower cost level. Robin, does that answer your question?
Yes. Yes. Thank you. Thank you. I have no more question. I will pass on.
This concludes our question- and- answer session. I would like to turn the conference back over to Kevin He for any closing remarks.
Well, 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.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.