Good day, welcome to the Daqo New Energy first quarter 2018 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 telephone keypad. 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 first quarter of 2018, 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. Ming Yang will discuss the company's financial performance for the first quarter of 2018. 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 in-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 reports or documents we have filed with or furnished to the Securities and Exchange Commission. These statements only reflect our current and preliminary view as of today and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties.
All information provided in today's call is as of today, and we undertake no duty to update such information, except as required under applicable law. Also, during the call, we will occasionally reference monetary amounts in U.S. dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer these translations into US dollars solely for the convenience of the audience. Without further ado, I now turn the call over to our CEO, Mr. Zhang, please.
Hello, everyone, and thank you for joining us today for our earnings call. I am pleased to announce another excellent quarter of our operational and financial results, in which we produced a record high 5,657 metric tons in polysilicon. We also broke our record for external sales volume during the quarter by shipping 5,411 metric tons. This strong growth in production and external sales volume is being driven by our continuing focus on improving manufacturing efficiency and maximizing our overall output. Demand for our high-quality polysilicon products remained strong and allow us to generate $13.3 million in revenue. A gross margin of 44.8%. $31.6 million in net income, attributable to Daqo New Energy shareholders. $51.7 million in EBITDA and an EBITDA margin of 50%.
Polysilicon ASPs softened in February due to Chinese New Year holiday, but grew strongly in March as downstream clients resumed production. Demand for our ultra-high quality monocrystalline-grade polysilicon in particular, which now accounts for approximately 60% of our total production volume, rebounded significantly after the holiday period, which can be seen in our record high production volumes and lower inventory levels. We signed a 39,600 metric tons ultra-high quality polysilicon supply agreement with LONGi in early April. That will span from 2018 to 2020, which underlines our reputation as a reliable and preferred supplier. Demand for our monocrystalline-grade polysilicon also remains robust as we increasingly benefit from its price premium over our multicrystalline-grade polysilicon and increased demand throughout the rest of the year.
The latest industry forecast indicates that the global solar installation will grow by approximately 10%-15% in 2018. According to China's National Energy Administration, China installed 9.7 GW of PV modules during the Q1 of this year, of which 7.7 GW were in distributed generation projects and 2 GW were in traditional solar utilities installation. Notably, there is a 217% year-over-year increase in China's DG installations. China's National Energy Administration also stressed the importance of the Top Runner program, PV poverty alleviation program, and sustainable growth of DG projects, which are expected to continue to drive domestic PV demands.
In particular, China recently announced that for the third phase of its Top Runner Program, approximately greater than 80% will utilize monocrystalline solar-based PERC high-efficiency technology, which we believe will create a solid foundation for the sustainable long-term demand for our high-purity monocrystalline-grade polysilicon products. With rapidly growing customer demand for our products, we are accelerating the pace of our phase III-B capacity expansion project, and now expect to complete construction and installation, as well as begin pilot production by the end of 2018. This will allow us to further reduce costs and ramp up to full production capacity of 30,000 metric tons during the 1st quarter of 2019. We are also pleased to announce the next stage in our capacity expansion plan, which complements phase III-B .
Phase IV-A will increase our annual polysilicon capacity by 35,000 metric tons, bringing total annual capacity to 65,000 metric tons by the first quarter of 2020. Design and construction of the new production facility will begin in May 2018, with pilot production expected to begin during the fourth quarter of 2019 before ramping up to full 35,000 metric tons annual production capacity in the first quarter of 2020. The entirety of our phase IV expansion plan will expand our manufacturing capacity by a total of 70,000 metric tons over two phases, phase IV-A and phase IV-B, which will each consist of 35,000 metric tons of expanded manufacturing capacity. Phase IV-A is an important milestone in our long-term expansion plan to meet certain market demand.
This new facility will feature state-of-the-art equipment and technology and produce ultra-high purity monocrystalline-grade polysilicon, which is a strong demand with only a very few Chinese manufacturers who are able to produce. This additional capacity will improve manufacturing efficiency, and it is expected to further reduce costs by approximately CNY 1.70 per kg from current levels. Capital expenditures for this facility expected to be at around CNY 14-CNY 15 per kilogram. We continue to focus improving manufacturing efficiency and developing additional technical improvements to further reduce costs, especially when it comes to our two biggest polysilicon manufacturing cost components, unit electricity consumption and unit silicon metal consumption. We made a significant progress during the quarter by reducing unit electricity consumption per kilogram of polysilicon produced by roughly 10% year-over-year, and unit silicon metal consumption by approximately 5% year-over-year.
I'm pleased with our strong start to the year and believe the $110 million follow-on offering we completed last month demonstrates the market confidence in our strategy, deeply experienced management team, and the sustainable long-term growth of the industry. As our newly added capacity comes online, allowing us to meet growing demand and our competitive advantages in polysilicon quality and production costs bear more fruit, we will be ideally positioned to solidify our position as the polysilicon manufacturing leader. Outlook and guidance. Now, turning to our guidance. We expect to produce approximately 5,600-5,800 metric tons of polysilicon and sell approximately 5,300-5,500 metric tons of polysilicon to external customers during the second quarter of 2018.
The above external sales guidance includes shipments of polysilicon to be used internally by our Chongqing solar wafer facility, which utilizes polysilicon for its wafer manufacturing operation. Wafer sales volume is expected to be approximately 15 million-20 million pieces for the second quarter of 2018. For the full year 2018, we expect to produce approximately 22,000-23,000 metric tons of polysilicon, which includes the impact of our annual facility maintenance. This outlook reflects our current and preliminary view as of today and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties. With that, I will turn the call over to Ming, our CFO. He will go over our financials for the quarter. Ming, please go ahead.
Thank you, Longgen, and good day, everyone. Revenues for the quarter were CNY 103.3 million compared to CNY 103.7 million in the fourth quarter of 2017 and CNY 83.8 million in the first quarter of 2017. Despite an approximately 7% sequential decline in ASP as compared to Q4 2017, this was offset by a 6% sequential increase in polysilicon production volume. As a result, we were able to achieve similar levels of revenue in Q1 2018 as compared to Q4 2017. Revenues from polysilicon sales to external customers were CNY 95.6 million, compared to CNY 89.9 million in the fourth quarter of 2017 and CNY 70.4 million in the first quarter of 2017.
External polysilicon sales volume was 5,411 metric ton, compared to 4,730 metric ton in the fourth quarter of 2017 and 4,223 metric ton in the first quarter of 2017. The sequential increase in polysilicon revenue was primarily due to higher polysilicon production and sales volume, partially offset by lower average selling price. Revenues from wafer sales were $7.6 million, compared to $13.9 million in the fourth quarter of 2017 and $13.4 million in the first quarter of 2017. Wafer sales volume was 13.3 million pieces, compared to 22.3 million pieces in the fourth quarter of 2017 and 22.4 million pieces in the first quarter of 2017.
The sequential decrease in revenues from wafer sales was primarily due to lower sales volume and a lower average selling price for wafers. Gross profit was approximately CNY 46.2 million, compared to CNY 46.9 million in the fourth quarter of 2017 and CNY 35.9 million in the first quarter of 2017. Non-GAAP gross profit, which excludes costs related to the non-operational polysilicon assets in Chongqing, was approximately CNY 46.6 million, compared to CNY 47.3 million in the fourth quarter of 2017 and CNY 36.9 million in the first quarter of 2017. Gross margin was 44.8% compared to 45.2% in the fourth quarter of 2017 and 42.8% in the first quarter of 2017.
The sequential decrease in gross margin was primarily due to a decrease in average selling prices, partially offset by a decrease in average polysilicon production cost. In the first quarter of 2018, total costs related to the non-operational Chongqing polysilicon assets, including depreciation, were CNY 0.4 million, compared to CNY 0.4 million in the fourth quarter of 2017 and CNY 1 million in the first quarter of 2017. Excluding such non-cash costs, non-GAAP gross margin was approximately 45.2% compared to 45.6% in the fourth quarter of 2017 and 44% in the first quarter of 2017. Selling, general, and administrative expenses were CNY 4.8 million, compared to CNY 4.7 million in the fourth quarter of 2017 and CNY 4.1 million in the first quarter of 2017.
We expect SG&A expenses to remain at similar levels for Q2 2018 as compared to Q1 2018. Research and development expenses were approximately CNY 0.1 million, compared to CNY 0.1 million in the fourth quarter of 2017 and CNY 0.4 million in the first quarter of 2017. R&D expenses could vary from period to period and reflected R&D activities that took place during the quarter. Other operating income was CNY 0.4 million, compared to CNY 4.4 million in the fourth quarter of 2017 and CNY 0.8 million in the first quarter of 2017. Other operating income was primarily composed of unrestricted cash incentives that the company receives from local government authorities, the amount of which varies from period to period.
Operating income was CNY 41.7 million, compared to CNY 43.6 million in the fourth quarter of 2017 and CNY 32.2 million in the first quarter of 2017. Operating margin was 40.4%, compared to 42% in the fourth quarter of 2017 and 38.4% in the first quarter of 2017. Interest expense was CNY 4.1 million, compared to CNY 4.1 million in the fourth quarter of 2017 and CNY 4.3 million in the first quarter of 2017. EBITDA was CNY 51.7 million, compared to CNY 53.6 million in the fourth quarter of 2017 and CNY 41.7 million in the first quarter of 2017.
EBITDA margin was 50%, compared to 51.7% in the fourth quarter of 2017 and 49.8% in the first quarter of 2017. Net income attributable to Daqo New Energy shareholders was CNY 31.6 million, compared to CNY 33.7 million in the fourth quarter of 2017 and CNY 22.9 million in the first quarter of 2017. Earnings per basic ADS were CNY 2.91 compared to CNY 3.16 in the fourth quarter of 2017 and CNY 2.18 in the first quarter of 2017.
As of March 31, 2018, the company had $83 million in cash equivalents, and restricted cash compared to $72.7 million as of December 31, 2017, and $61.2 million as of March 31, 2017. As of March 31, 2018, the accounts receivable balance was $2 million compared to $3 million as of December 31, 2017, and $13.1 million as of March 31, 2017. Due to robust customer demand for our high-quality polysilicon products, customers primarily paid for our polysilicon products in advance of polysilicon shipments. As of March 31, 2018, notes receivable balance was $49.7 million compared to $27.3 million as of December 31, 2017, and $11.7 million as of March 31, 2017.
Our notes receivable consists of bank notes issued by domestic Chinese banks, which can be converted to cash upon demand. As of March 31st, 2018, total borrowings were CNY 217.8 million, of which CNY 108.4 million were long-term borrowings compared to total borrowings of CNY 212.9 million, including CNY 113.6 million of long-term borrowings as of December 31st, 2017, and total borrowings of CNY 236 million, including CNY 129.2 million of long-term borrowings as of March 31st, 2017. Now for cash flow. For the three months ended March 31st, 2018, net cash provided by operating activities was CNY 21.7 million compared to CNY 28.6 million in the same period of 2017.
The decrease was primarily due to increased notes receivable balance as of March 31, 2018. For the three months ended March 31, 2018, net cash used in investing activities was CNY 11.5 million compared to CNY 16 million in the same period of 2017. The net cash used in investing activities in the first quarter of 2018 and for the first quarter of 2017 was primarily related to the capital expenditures on the Xinjiang polysilicon projects. For the three months ended March 31, 2018, net cash used in financing activities was CNY 2.4 million compared to CNY 16.5 million in the same period of 2017. Net cash used in financing activities in Q1 2018 and Q1 2017 primarily consists of repayments of related party loans and repayments of bank borrowings. This concludes our prepared remarks.
We would now like to turn the call over to the operator to begin the Q&A session. Operator, please begin.
The first question comes from Philip Shen of Roth Capital Partners. Please go ahead.
Hi, everyone. Thanks for the questions. Congratulations on the nice results. Wanted to start with some of your expansion plans. You talk about CNY 3 billion of CapEx required for the phase IV-A expansion. You know, you just raised CNY 100+ million through equity. I think you have some prepayments with LONGi. Can you walk us through what the sources of the cash will be? Do you, for example, expect additional prepayments to support the funding of the phase IV-A expansion?
Okay. I think, actually good morning, Philip. To answer your question, I think, phase IV-A total investment is around CNY 3.2 billion, equivalent to $500 million. This, you know, the CapEx, you see the source is come from mainly from cash on hand and also cash from operation. We believe is around like CNY 4.7 billion, equivalent to like $270 million. Account for 54% is our own money. We also receive, I think LONGi, the client, CNY 200 million, around $30 million, the prepayments around 6%. We may be short is around like, you know, 40% is $200 million, around CNY 1.3 billion. That is come from the banking loans or possible bonds.
Today, we have banking facilities available is more than $200 million. That's the, you know, the source come from.
Great. Do you think you would wanna conduct another equity raise, or do you think the rest of it you would want to complement purely with bank loans?
Most likely we will not go to the market for the, I think, equity financing. Because based on right now, the, you know, the funds are available, and we believe, I think the banking facilities and the possible bonds is enough for us to support the phase IV-A expansion.
Phil, just follow up on what Longgen just said, right? If you look at our cash and cash equivalent, the equivalent of the cash for last quarter was around $80 million. You know, that excludes the LONGi prepayments. If you add LONGi prepayments and potential
Cash that we would generate for the next quarter, we're looking at well over CNY 100 million. In addition to that, we have another CNY 110 million from the most recent follow-on offering, and another CNY 50 million in bank notes, which we can use to pay for our equipment purchases, for example. I think just the cash on hand, there's a lot of liquidity for us currently. The remainder, you know, potentially we would use domestic Chinese bank bonds, for example.
Great. That's helpful. Would you expect another LONGi type contract as well, where you can pre-sell maybe to another meaningful buyer and then get a down payment from them as well, or prepayment?
Philip, basically right now, the expansion, you know, layout, I think, if you look at next year, the capacity is already there. You know, more than 35,000 tons. By 2020 is more than, you know I'm not give guidance, okay. Basically, on the capacity design, 65,000 tons more than that. Longi contract, you know, next year is around 14,000 tons, and the 2020 is 18,000 tons. Yes, I think next three years we still have, like, more than 16,000 tons available, I think, you know, by 2021, okay? 2021. Basically right now it's possible, by the end of this year or beginning of next year, assign another contract, for example, like with Longi and, you know, to continue to supply for them.
We right now negotiation with the other two major clients right now on the long-term contract. Yes, it's possible. We are planning to continue to sign long-term contract to collect more prepayments.
Great. That's really helpful. Thanks. Shifting gears, I think you talked about being able to reduce your cost structure by $1.70 from current levels of $9.20. That would suggest costs could be reduced to $7.50 per kilogram with the expansion of phase IV-A. Is that blended or is that incremental? Is that $7.50 for the entire blended cost structure for all the capacity, or would that just be for the marginal capacity or the expansion capacity? Thanks.
I think to answer your question, maybe Ming can, you know, continue to, you know, comment on that. You have to look, we right now is working on phase III-B. As soon as phase III-B full ramped, we believe we're CNY 1 more lower than the current. That's mean we, you know, if we finish phase III-B, so the cost will re-reduce to CNY 8.20 per kg around. That mean the electricity price will drop to CNY 0.24. Right now we are negotiation with the government, you see. It's possible, I think right now it's going to right now, CNY 0.22 per kWh, but we want more.
If even let's say based on CNY 0.22 overall, so if we finish that phase IV-A, that's 35,000 tons, that's overall the cost will drop to CNY 7.50 kg. That's based on right now the current, you know, foreign exchange. Basically what I say is CNY 1 lower than current level after we finish phase III-B. CNY 1.70 lower, you know, we're further lower, you know, than after we finish 35,000 tons. Is that clear? That mean.
Yeah. That's blended.
Yeah, blended. Yeah.
Okay, great. Thanks, Longgen. Let's move to the ASP outlook. You know, the June 30 poly ASPs domestically in China have found a bottom, I think, through March and April, especially through April, week over week, the pricing has remained healthy. You know, as we go through June 30th, you know, there's some mixed reports, you know, is there a big rush this year or not? It's not clear. Also it seems like the NEA is, you know, pushing some new regulations and potentially caps for the DG segment. You know, nothing is finalized, but that's what is out there. How do you expect ASPs for poly to trend in Q2 and Q3?
What do you see as the total demand for China this year? Last year was 53 GW. Do you see something closer to, you know, something lower than 53 GW? If so, by how much? Thanks.
First of all, to answer your first question, I think about ASP. Yes, during the first quarter, I think, you know, after Chinese New Year, the price dropped down to even lower than like CNY 115 renminbi yuan per kg. You know, immediately bounced back. If you look our first quarter, the every ASP is without, I think, without tax, is around CNY 17.68 ASP. Renminbi is CNY 131 renminbi yuan per kg. If you look at right now, especially these two weeks, the silicon price continue to go up. Today, I think the mono silicon price is around like CNY 130 per kg. No, CNY 130 renminbi yuan per kg. Today, China, the value-added tax is dropped to from 17% to 16%.
You divide it by 1.16. It's around $17, $0.60 on the, I think $0.68 on the mono silicon. On the multi-silicon right now is around like, you know, $17 without tax. We see strongly, I think that the price continue to go up. The reason because we see the downstream capacity, especially on the mono wafer is fully running right now. Like LONGi is continuing expansion. Like, you know, the major other clients, okay? I'm not just set an example like even JinkoSolar, even I'm not actually seeing more. I think more the wafer capacity is running. Even multi, I think, capacity. Only the small and middle size, maybe we you know, the capacity is not fully running. For the bigger player also is a 100% running.
We see the demand continue to go up. That's why I do believe, you know, on Q2, the SP should be, you know, maybe, you know, keep it the same as Q1. Okay. For the second half of this year, from my, you know, view, because we do not think, you know, too much polysilicon output come out, especially in China, the low-cost output, you know, come out. I do not believe the polysilicon SP in the second half of the year will go down. Okay, that's my projection. To answer your second question about, you know, the whole market. If you look at the globally, robust, you know, continue to growth, you know.
Even let's say Algeria, I think they just declare 4 GW continue to go up. I think, you know, China, especially a big player, last year, the DG is around 19 GW. This year, because of industrial DG, the government put some, you know, I think, restriction. It's still actually negotiable. Still I think a discussion right now, it's not final. You have to see the poverty alleviation in the eastern coast area. You know, today, for the Philip, just let's take example. The third, I think the third Top Runner, you know that how much cost, you know, the bidding, the lower bidding, the price? Only CNY 0.315/kWh asking for. The install cost is how much? Everything in together, equipments, everything, land, only CNY 4 per kW, per watt.
Think about that, in the East China area. Is the sunshine maybe 1,100 hours. Annually generate maybe around it's per watt, you can generate 1.1 kWh to 1.2 kWh. It's only 10%. I think the grid parity is near. Continue the cost, continue to go down. That's why I think the potential China market, I don't think, you know, especially in, on DG, you see, without government subsidies, I think, you know, some area are really grid parity. I see this year, DG, I don't think, you know, 19 GW last year can be, you know, the, you know, we definitely we've broken the record. What I think is the DG should be around like, you know, 30 GW. You know, then the utility scale maybe go down to 25 GW or 30 GW.
We still can keep the same, I think, you know, the installation, like last year. That's my projection.
Okay, great. You know, that's very helpful. You mentioned very quickly here about you don't see much competitor capacity coming online. You know, last year we saw a very similar pattern. There was a lot of big announcements by East Hope and Tongwei and some others, that capacity actually wasn't necessarily added to the system. Can you comment on kind of what you're seeing today? You know, I think Wacker is restarting, you know, their Tennessee plants. I know it's very hard for them to get into the Chinese market, it does add to the global supply. Comment generally about, you know, what you're seeing competitively. Given your expansion plans, it seems like you think some of that may not come online as announced. If you can give us some detail around that'd be great.
Okay. First of all, I'm not, you know, comment, you know, other people, you see, the other player. We have to know other player, you see, what are they doing. Basically, if you look, you know, today, most lower cost, I think, plant is in Xinjiang. Okay? If you look, okay, I think, GCL, right? GCL, I think, they have declared, I think, 40,000 tons in Xinjiang. As we know, they may be partnering or starting production by the end of this year. As we know, okay, maybe around 10,000 production will starting, you know, 2019.
If you look, I think TBEA, I think they just declare, I think, you know, 36,000 tons. Majority, I think they were starting production. Our original projection is early 2020. They may be a little early, okay, come, you know, end of next year. Tongwei, as you know, they have 2two plants. I think each is 25,000 tons. One is in Wuxan, one is in Mongolia. I think they original planning is end of this year. As we know that there may be delay to, you know, I think early next year. Basically this year is not too much adding, but next year, yes, I think we're adding maybe around, you know, 10,000 tons.
As I mentioned that you have to look today the lower cost in China, you see, if look at today based on right now RMB exchange rate, CNY 6.35 per dollar. Basically below CNY 11.5 per kg. Today in China, the output is not too much there, less than 1,000 tons. Even you add by 2020, we calculation, let's say, in China, if lower CNY 11.50, maybe below 270,000 tons. The consumption last year, it's already 460,000 tons, right? Just you like mentioned that OCI Wacker, their import, their cost is higher, basically, you know. I'm not comment to that. If you look the history, the ASP below CNY 13, CNY 14 will bounce back.
That's major reason because you see it hits the cost, every cost that those, you know, the import polysilicon, the cost. That's why it bounce back again. Yes, maybe by 2020, the hurdle will go down. It's not CNY 13, CNY 14. Maybe go down to, you know, CNY 11.50 to CNY 12, you know, then bounce back. That's why the whole philosophy and the strategy why we are going to expansion that to phase IV-A, because we want to starting try production, you know, by October next year. Because we can see to starting, you know, full capacity running may be possible, you know, the Q4, then whole running on 2020. By 2020, we are the lead player, you know, the lower cost, high, you know, quality to meet, you know, the downstream clients. That's the whole philosophy.
Great. Longgen, Ming, thank you very much. I'll pass it on.
Great. Thanks, Phil.
Again, if you have a question, please press star then one on a touch-tone phone. The next question comes from Brad Meikle of AMPAC Research. Please go ahead.
Hey, guys. Good evening. Thanks for the question. Could you talk about the tone of the market so far as, you know, with customers? Would you say the market's on allocation, and do you think that will continue for the rest of the year?
Okay. I'll first answer your question. I think right now all major clients like LONGi, like JinkoSolar, like Zhonghuan, also is A-share company. Zhonghuan is maybe you're not familiar. It's a 22 GW by the end of this year on the wafer capacity. Also Trina Solar, you know, a lot of, more than 10 medium clients, major they are, the A-share company. We are continue working with them, especially I think on the monocrystalline supply clients. The major focus right now is five to six clients because we didn't have enough right now to supply to all clients. Like LONGi right now is 800 tons, you know, per month, and they asking extra, you know.
Basically right now it's not to, you know, available, you know, for them. On the polysilicon, JinkoSolar Trina Solar is still our major clients right now, also other clients. Basically right now we think, you know, we are negotiation with, you know, the two major clients right now try to sign long-term contract, you know, to cover maybe three to four years, next three to four years supply based on our expansion. Maybe Ming can-
Yeah. I would say the market is very tight for polysilicon supply right now, particularly for the higher grade, for the monocrystalline solar type of products, where, you know, we don't have enough products to serve our customers. Customers have much higher volume request versus our ability to produce and supply.
Thanks. What portion of your output today would you say would be high quality enough for mono, and where is that number going, like, by the end of the year and the end of next year?
I think for first quarter is around 60% right now is, you know, monocrystalline. 40% is, I think, multicrystalline. For the second quarter, I think the percentage will continue to increase to 70%-80%. Basically, by the end of this year, I think just based on right now the capacity, okay, I think maybe around 80%, you know. Phase III-B is 100% monocrystalline. Next year, I think 35,000 tons should more than 90% is monocrystalline. I think phase IV-A, that additional 35,000 tons expansion, that's by 2020, I think also is 100% when for the monocrystalline. Basically, by 2020, I think we should be like 95% is monocrystalline.
I would say the key difference for us compared to a lot of our other polysilicon producer peers is particularly within China. We're one of the very few that could deliver the mono grade type of product in very large quantities in a very stable supply. This is very much in demand right now.
Yeah. I thought it was harder to ramp up the higher quality capacity. How have you guys been able to do that, you know, so quickly this year or to convert to higher quality output?
I think, the major, I think, technology, I think we have is on the finished products, departments, then also on the, I think, recycling, technology. I think, I cannot, you know, specifically to detail. The reason is because we have more innovation and know-how. Priority technology improvements on the Siemens method. You see, that's why we're learning from our experience because we buy whole sets of technology from Siemens, you know, in 2008. That's why we're learning from our experience. Today, you know, only few, well, why say only few can manufacture mono silicon, basically, TBEA and then another small one, player. If you look at that, you know, in that way everybody know that.
We are, I think at the lower cost compared to TBEA because TBEA even they run their own power plants. You can look at their financial statements and compare the gross margin to see the cost. For example, like mono silicon, they have to further clean, you know, to selling to the clients. We needn't to clean, you know. All the finished product department is all, you know, starting the depository come out broken, you know, all is automatically and working on that. Basically, you know, it's a lot of, you know, I think technology, know-how or operation, you know, key data, you know, all those stuff, you know.
Brad , I think it is a very steep learning curve to do this. If we're talking about removal of elements like iron, boron, phosphorus, carbon, oxygen from the silicon on a parts per billion basis. I mean, for some of competitors who are used to supplying internally, for example, for all multicrystalline type of production, they have no motivation to go through the learning stuff that we did. You know, it took us maybe three years working with some of the leading mono solar technology companies, even companies that was doing N-type. I mean, we went from 10%, 20% to now 70%, 80%. It takes a long time to do this. It's not easy at all.
Thank you. Just last question is on the supply growth. You know, some of the new supply has been challenged to come on. Overall, what would you say is the supply growth of China polysilicon output this year and next year? What if you consider the reduction of grams per watt through the diamond saw, diamond wire saw transition, what do you think is the actual change in supply there?
Okay. If you look at last year, total supply, I think all consumption, you know, in China because the wafer manufacturing mostly in China, right? Last year, total is 460,000 tons last year, of which I think is 160,000 tons import from OCI and Wacker. China, total manufacturing is 300,000 tons. You have to look, you know, there are 300,000 tons in China. I think the top one GCL, 75,000 tons. If you look, TBEA is 30,000 tons. Tongwei is 20,000 tons. If you look at the cost structure, you see the majority in China today, the cost based on today's foreign exchange rate, just so I mentioned that.
You know, I think a major, maybe around like, you know, what I say is more than 200,000 tons, the cost is about CNY 11.50 per kg. Okay? Yes, then the new, I think, you know, capacity investments come in. Today, I think the first one is East Hope, New Horizon or you call, right? I think the first production line is 150,000 tons. I think it's 15,000 tons. Starting pilot production is end of 2016. We still didn't see, you know, the sellable quality, you know, used by the bigger player downstream wafer manufacturing. They are still working, you know, hard on that. Maybe, I think, you know, later they can, if they can, you know, I think, you know, to ramping up their output.
I believe, I think like Tongwei, TBEA just declared 36,000 tons, and they maybe come out, you know, early 2020. Also GCL is declare 40,000 tons, but I think, first 12,000 tons will come out at the end of this year. Basically, you know, what I say, the lower cost, what I say is below, the cost is below $11.50 is not, you know, available there. What I'm calculating here, this year, maybe around, you know, 100,000 tons. Next year, maybe around 200,000 tons. By 2020 is around, you know, 270,000 tons is there. That's why I ask you a question, okay?
If supply is over demand, I think the high cost, especially imports, then also the high cost Chinese producer, those are high cost, about $11.50, maybe, you know, will be wiped out, will be consolidated. Consider also the demand side, you just mentioned that. Yes, I agree with you. You know, mono silicon, because of the high efficiency per watt, actually per watt consumption silicon is go down, you know. You have to consider that. Today, I should mention that the installation per watt total cost in China is CNY 4 per, you know, renminbi yuan per watt. That's equivalent how much? $0.80 per watt. If you look at the sunshine, you know, you can generate, let's say, 1.2, 1.3 in the eastern coast of China, right?
What's the return? It's a high return there. The demand side, what I think is the potential robust, you know, globally, I think it will continue to grow. What I think this year, last year is around 90, 80 GW. This year definitely, I think we'll go to 110 GW. You know, if conservative people thinking is around like 105, also aggressive 120. I think the consumption of silicon will continue to go up. The reason why, because the monocrystalline full capacity running. The multicrystalline is still not shut down. The wafer capacity is still running. The only middle and small and medium, the wafer facilities were shut down. The capacity will continue running. Now, especially in China, people have to know that. Even Top Runner projects, you see, is not installed.
In 2017, still have a lot that will shift to 2018, 2019 to install. Basically, what I think potentially this year, the demand should be, you know, not below 406,000 tons on the silicon side. I think maybe that increase, you know, if the installation of the downstream, let's say, increase 20%, let's say, silicon definitely will increase it. Because of high existing trade off some, at least will increase like 10%, 5%-10%.
Thank you. Yeah.
Did that answer your question?
Yeah. Thank you. Yeah. 110, 120 demand sounds right to me.
Yeah. Also.
With-
Some consumption may be in the work-in-process. What I'm saying work-in-process because you see the polysilicon capacity still is there. The wafer capacity is still running.
Yeah. Just last clarification is what's your assumed grams per watt consumption, you know, this year just on average for the industry compared to last year?
You're talking about the multi or mono?
I guess I was asking for both, but if you wanna break them out separately, that's great.
I think I have the figure. I have the figure there. I think for the multi, maybe around like, you know, 4.2 g, 4.3 g per watt. For the mono, it's around a 3.5 g to 3.6 g. It depends on the diamond saw, you see, right now continuing to become thin. Right now, change to 70 to 65, 60 millimeter, you know, whatever. Yeah, I think per watt, I have the figure. Calculation. That's here. It should be here. Let's see.
Do you have an average number for last year and this year?
I think I have-
To kind of blend the business.
The figure for you. Let's see.
Are you checking this later today?
I think you can calculate it basically. Yeah, it basically, you know, I think, right now, I just tell you what we're doing, okay? Per piece like wafer right now, I think multi maybe around like, generally around 4.5 W. For the mono is around like 5.8 W. It's easy for you to calculation. I think per piece consumption, yeah, is around like 4.5 g. Yeah.
Thank you very much.
This concludes our question and answer session. I would like to turn the conference back over to Kevin He for any closing remarks.
Thank you everyone again for participating in today's conference call. Should you have any further questions, please don't hesitate to contact us. Thank you very much, and bye-bye.
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