Earnings Call: Q1 2018

May 8, 2018

Good day, and welcome to the Daqo New Energy First Quarter 2018 Results Conference Call. All participants will be in listen only mode. 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 Q1 of 2018, which can be found on our website at www.dqsolar.com. To facilitate today's conference call, we have also prepared a PPD 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 Q1 of 2018. After that, we will open the floor to Q and A from the audience. Before we begin the formal remarks, I would like to remind you that certain statements on today's call, including expected future operational and financial performance and industry growth, are forward looking statements that are made under the safe harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward looking statements. Further information regarding these and other risks is included in the reports or documents we have filed with or furnished to the Securities and Exchange Commission. These statements only reflect our current and preliminary view as of today and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties. All information provided in today's call is as of today, and we undertake no duty to update such information, except as required under applicable law. Also during the call, we will occasionally reference monetary amounts in U. S. Dollar terms. Please keep in mind that our functional currency is 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. Zhao Li. Hello, everyone, and thank you for joining us today for our earnings call. I am pleased to announce another excellent course of our operational and financial results in which we produced a record high 5,000 657 metric tons in polysilicon. We also broke our record for external sales volume during the quarter by shipping 5,411 measured 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 remains strong and allow us to generate US103.3 million dollars in revenue, a gross margin of 44.8 percent, US31.6 million dollars in net income attributable to Daqo New Energy Shareholders, US51.7 million dollars in EBITDA and an EBITDA margin of 50%. Polysilicon ASTs 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 mono crystalline 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, actually 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 mono crystalline grade polysilicon also remains robust as we increasingly benefit from its price premium over our multi crystalline 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% to 15% in 2018. According to China's National Energy Administration, China installed 9.7 gigawatts of PV modules during the Q1 of this year, of which 7.7 gigawatts were in distributed generation projects and 2 gigawatts were in traditional solar utilities installation. Notably, there is a 2 17% 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 demand. In particular, China recently announced that for the 3rd phase of its pop around the program, approximately greater than 80% will utilize mono crystalline solar based PERC high efficiency technology, which we believe will create a solid foundation for the sustainable long term demand for our high puritymonacrystalline grade polysilicon products. With rapidly growing customer demand for our products, we are accelerating the pace of our Phase 3b 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 Q1 of 2019. We are also pleased to announce the next stage in our capacity expansion plan, which complements Phase 3b. Phase 4a will increase our annual polysilicon capacity by 35,000 metric tons, bringing total annual capacity to 65,000 metric tons by the Q1 of 2020. Design and construction of the new production facility will begin in May 2018, which pilot production expected to begin during the Q4 of 2019 before ramping up to 435,000 metric ton annual production capacity in the Q1 of 2020. The entirety of our Phase 4 expansion plan will expand our manufacturing capacity by a total of 70,000 metric tons over 2 basis, Phase 4a and Phase 4b, which were each consist of 35,000 metric tons of expanded manufacturing capacity. Phase 4a 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 period 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 $1.70 per kilogram from current levels. Capital expenditures for this facility expected to be at around $14 to $15 per Q1. We continue to focus improving manufacturing efficiency and developing additional technical improvements to further reduce costs, especially when it comes to our 2 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 the unithiliconmetal consumption by approximately 5% year over year. I'm pleased with our strong start to the year and believe the US110 million dollars 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 accounts 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 metric tons to 5,800 metric tons of polysilicon and to sell approximately 5,300 metric tons to 5,500 metric tons of polysilicon to external customers during the Q2 of 2018. The above external sales guidance includes shipments of polysilicon to be used internally by our Chongqing Solar Waver Facility, which utilizes polysilicon for its wafer manufacturing operation. Waver sales volume is expected to be approximately 15,000,000 to 20,000,000 pieces for the Q2 of 2018. For the full year 2018, we expect to produce approximately 22,000 metric tons to 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 $103,300,000 compared to $103,700,000 in the Q4 of 2017 $83,800,000 in the Q1 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. And 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 $95,600,000 compared to $89,900,000 in the Q4 of 2017 and seventy point $4,000,000 in the Q1 of 2017. External polysilicon sales volume was 5,411 metric tons compared to 4,730 metric tons in the Q4 of 2017 and 4,223 metric tons in the Q1 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 $7,600,000 compared to $13,900,000 in the Q4 of 2017 $13,400,000 in the Q1 of 2017. Wafer sales volume was 13,300,000 pieces compared to 22,300,000 pieces in the Q4 of 2017 and 22,400,000 pieces in the Q1 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 $46,200,000 compared to $46,900,000 in the Q4 of 2017 $35,900,000 in the Q1 of 2017. Non GAAP gross profit, which excludes costs related to the non operational polysilicon assets in Chongqing, was approximately $46,600,000 compared to $47,300,000 in the Q4 of 2017 and $36,900,000 in the Q1 of 2017. Gross margin was 44.8 percent compared to 45.2% in the Q4 of 2017 and 42.8% in the Q1 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 costs. In the Q1 of 2018, total costs related to the nonoperational Chongqing Polysilicon assets, including depreciation, were $400,000 compared to $400,000 in the Q4 of 2017 and $1,000,000 in the Q1 of 2017. Excluding such non cash costs, non GAAP gross margin was approximately 45.2% compared to 45 0.6% in the Q4 of 2017 and 44% in the Q1 of 2017. Selling, general and administrative expenses were $4,800,000 compared to $4,700,000 in the Q4 of 2017 and $4,100,000 dollars in the Q1 of 2017. We expect SG and A expenses to remain at similar levels for Q2 2018 as compared to Q1 2018. Research and development expenses were approximately $100,000 compared to $100,000 in the Q4 of 2017 and 0 $400,000 in the Q4 of 2017. R and D expenses could vary from period to period and reflected R and D activities that took place during the quarter. Other operating income was $400,000 compared to $4,400,000 in the Q4 of 2017 and $800,000 in the Q1 of 2017. Other operating income was primarily composed of unrestricted cash incentives that the company received from local government authorities, the amount of which varies from period to period. Operating income was $41,700,000 compared to $43,600,000 in the Q4 of 2017 and $32,200,000 in the Q1 of 2017. Operating margin was 40.4% compared to 42% in the Q4 of 2017 and 38.4% in the Q1 of 2017. Interest expense was $4,100,000 compared to $4,100,000 in the Q4 of 2017 and $4,300,000 in the Q1 of 2017. EBITDA was $51,700,000 compared to $53,600,000 in the Q4 of 2017 and $41,700,000 in the Q1 of 2017. EBITDA margin was 50% compared to 51.7% in the Q4 of 20 17 and 49.8 percent in the Q1 of 2017. Net income attributable to Daqo New Energy shareholders was $31,600,000 compared to $33,700,000 in the Q4 of 2017 and $22,900,000 in the Q1 of 2017. Earnings per basic ADS were $2.91 compared to $3.16 in the Q4 of 2017 and $2.18 in the Q1 of 2017. As of March 31, 2018, the company had $83,000,000 in cash, cash equivalents and restricted cash compared to $72,700,000 as of December 31, 2017 $61,200,000 as of March 31, 2017. As of March 31, 2018, accounts receivable balance was $2,000,000 compared to $3,000,000 as of December 31, 2017 $13,100,000 as of March 31, 2017. Due to robust customer demand for our high quality Polyskin products, customers primarily paid for our polysilicon products in advance of polysilicon shipments. As of March 31, 2018, notes receivable balance was $49,700,000 compared to $27,300,000 as of December 30 1, 2017 $11,700,000 as of March 31, 2017. Our notes receivable consist of bank notes issued by domestic Chinese banks, which can be converted to cash upon demand. As of March 31, 2018, total borrowings were $217,800,000 of which $108,400,000 were long term borrowings compared to total borrowings of $212,900,000 including $113,600,000 of long term borrowings as of December 31, 2017 and total borrowings of $236,000,000 including $129,200,000 of long term borrowings as of March 31, 2017. Now for cash flow. For the 3 months ended March 31, 2018, net cash provided by operating activities was $21,700,000 compared to $28,600,000 in the same period of 2017. The decrease was primarily due to increased notes receivable balance as of March 31, 2018. For the 3 months ended March 31, 2018, net cash used in investing activities was $11,500,000 compared to $16,000,000 in the same period of 2017. The net cash used in investing activities in the Q1 of 2018 and for the Q1 of 2017 was primarily related to the capital expenditures on the Xinjiang Polysilicon Projects. For the 3 months ended March 31, 2018, net cash used in financing activities was $2,400,000 compared to CNY16.5 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 and 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. I wanted to start with some of your expansion plans. You talk about RMB3 1,000,000,000 of CapEx required for the Phase 4A expansion. You just raised 100 plus 1,000,000 through equity. I think you have some prepayments with Longxi. 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 4a expansion? Okay. I think actually good morning, Philip. To answer your question, I think 4a, total investment is around RMB3.2 billion, equivalent to US500 $1,000,000 And this the CapEx, you see the source is come from mainly from cash on hand and also cash from operation, we believe is around like RMB4.7 billion, equivalent to like US270 million dollars accounted for 54% is our own money. And we also received, I think, loan key declined US200 1,000,000,000 around US30 million dollars the prepayments around 6%. So we may be short is around like 40% is US200 1,000,000 around the RMB1.3 billion that it's come from the banking loans, a possible bounce. Today, we have banking facilities available. It's more than US200 $1,000,000 So that's the source compound. Great. And do you think you would want to conduct another equity raise? Or do you think the rest of that 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 funds are available. And we believe, I think, the banking facilities and the possible bonds is enough for us to support the 4A expansion. So Phil, just to follow-up on what Longgen just said, right. So if you look at our cash and cash equivalent, the equivalent of the cash for last quarter was around $80,000,000 and that excludes the long game prepayments. And so if you add the long game prepayments and potential cash that we would generate for the next quarter and we're looking at well over $100,000,000 And then in addition to that, we have another $110,000,000 from the most recent follow on offering and another $50,000,000 in bank notes, which we can use to pay for our equipment purchases, for example, right? So I think just the cash on hand, there's a lot of liquidity for us currently. And the remainder, potentially, we would use domestic Chinese bank bonds, for example. Great. That's helpful. And would you expect another Longji type contract as well where you can pre sell maybe to another meaningful buyer and then get a down payment from them as well for prepayment? Philip, basically right now, the expansion layout, I think if you look at next year, the capacity is already there, more than 35,000 tons. Then by 2020 is more than I'm not giving guidance, okay, basically on the capacity design, 65,000 tons more than that. The long term contract next year is around 14,000 tons and 2020 is 18,000 tons. Yes, I think next 3 years, we still have like more than 16,000 tons available, I think by 2021, okay, 2021. So basically right now, it's possible by the end of this year or beginning next year, sign another contract, for example, like with DongNi and to continue to supply for them. Then we right now negotiating with other 2 major clients right now on the long term contract. Yes, it's possible. We are planning to continue to sign long term contracts to collect more prepayments. Great. That's really helpful. Thanks. So shifting gears, I think you talked about being able to reduce your cost structure by 1.70 dollars from current levels of $9.20 Would the reduction just be for that would suggest cost could be reduced to $7.50 per kilogram with the expansion of Phase 4A. Is that blended or is that incremental? So 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 continue to comment on that. You have to look, we right now is working on 3B. So as soon as 3B fall ramped, okay, we believe we're $1 more lower than the current, okay? So that means if we finish 3B, so the cost will reduce to 8 point $2.0 per kg around. That means the invested price will drop to $0.24 okay? Then right now, we are in negotiation with the government, C. C. And it's possible, I think right now, it's going to right now, okay, dollars 0.22 per KWH, but we want more, okay? So it's even, let's say, based on $0.22 overall. So if we finish at 4A, that's $35,000,000 so that's overall the cost will drop to $7.50 kg. That's based on right now the current foreign exchange. So basically what I say is $1 lower than current level after we finish 3b, $1.70 lower, we're further lower than after we finished 35,000 tons. Is that clear? So that's me. So that's blended. Yes, blended, yes. Okay, great. Thanks, Morgan. So let's move to the ASP outlook. The June 30, poly ASPs domestically in China have found a bottom, I think, through March April, especially through April, week over week, the pricing has remained healthy. As we go through June 30, there's some mixed reports. Is there a big rush this year or not? It's not clear. And then also, it seems like DNEA is pushing some new regulations and potentially caps for the DG segment. Nothing is finalized, but that's what is out there. So how do you expect ASPs for poly to trend in Q2 and Q3? And then what do you see as the total demand for China this year, last year was 53 gigawatts? Do you see something closer to something lower than 53? And if so, by how much? Thanks. Okay. First of all, to answer your first question, I think about ASP. Yes, during the Q1, I think after Chinese New Year, prices dropped down to even lower than like RMB115 per kg, but immediately bounced back. So if you look our Q1, the average ASP is without I think without tax is around 17.68 RMB. RMB131 per kg. And if you look at right now, especially these 2 weeks, the silicon price continue to go up. Today, I think the model silicon price is around like $130 per kg, not $130 per kg. Today, China, the value added tax has dropped to from 17% to 16%. So you divided by 1.16, so it's around $0.17 $0.60 on the I think $0.68 on the monosilicon. On the multisilicon right now is around like $17 without tax. So we see strongly I think the price continue to go up. And the reason is because we see the downstream capacity, especially on the mono wafer is fully running right now. Like LONGi is continuing expansion, like the major other clients, okay. I'm not just setting an example like even Jinko, even I'm not interested to see more, I think mono wafer capacity is running. Even multi, I think capacity, only the small and middle sign, maybe the capacity is not fully running. But for the bigger player, also is 100% running. So we see the technology continue to go up. So that's why I do believe, I think, on Q2, the FPE should be, I think, maybe keep the same as Q1, okay? You say for the second half of this year, from my view, because we do not think too much polysilicon output come out, especially in China, the low cost output come out. So I do not believe the polysilicon ASP in the second half of the year will go down. Okay. That's my projection. To answer your second question about the whole market, I think if you look at the globally, I think robust continue to grow. Even let's say, Algeria, I think we just declare 4 gs, GWAS continue to go up. I think China is actually a big player. Last year, the DG is around 19 gigawatts. And this year, because of industrial DG, the government put some, I think, registration, it's still, I think, a negotiable, still, I think, a discussion right now is not final. But you have to see the poverty alleviation in the Eastern Coast area. Today for the Philip, just like I said example, the 3rd, I think the 3rd top runner, you know that how much cost the bidding, the lower bidding, the price only RMB 0.315 kwh asking for. The in store cost is how much everything together equipment, everything, land, only 4 renminbi per watt. Think about that in the East China area, is the Fanxuan maybe 1100 hours. So annually generate maybe around 8 per watt, you can generate 1.1 to 1.2 kwh. It's already 10%. So I think the grid parity isn't near. Continue the cost continue to go down. So that's why I think a potential China market, I don't think especially in our DG, you see without government subsidies, I think some area already grid parity. So I see this year DG, I don't think 2019 gigawatts last year can be the definitely we've broken the record. What I think is the DG should be around like 30 gigawatts. Then the utility scale maybe go down to 25 or 30. We still can keep the same, I think, the installation like last year. That's my projection. Okay, great. That's very helpful. And then finally, you mentioned very quickly here about you don't see much competitor capacity coming online. Last year, we saw a very similar pattern. There's a lot of big announcements by East Hope and Tongwei and some others. And that capacity actually wasn't necessarily added to the system. Can you comment on kind of what you're seeing today? I think Vacker is restarting their Tennessee plants. I know it's very hard for them to get into the Chinese market, but it does add to the global supply. So comment generally about what you're seeing competitively. And then if given your expansion plans, it seems like you think some of that may not come online as announced. And so if you can give us some detail around that, that would be great. Okay. First of all, I'm not comment other people, you see, the other player, but we have to know other player, you see, what they're doing. Basically, if you look today, most lower cost, I think, plant is in Xinjiang, okay? So if you look, okay, I think GCL, right. GCL, I think they are declared, I think, 40,000 tons in Xinjiang. As we know, they may be parturing or starting production by the end of this year. As we know, okay, maybe around 10,000 production we're starting end of this year. So not adding the capacity of this year, but maybe you were adding capacity in 2019. Then if you look, I think TBA, I think it's diesel declared, I think, 36,000 tons and majority I think they were starting production. We already know a projection is early 2020. They may be a little early, okay, come end of next year. Then Tongwei, as you know there, 2 plants, I think each is 25,000 tons, one is in Wusan, one is in Mongolia. I think the original planning is end of this year. But as we know that there may be delay to I think, early next year. So basically, this year is not too much adding. But next year, yes, I think we're adding maybe around 10,000 tons. But as I mentioned that you have to look today, the lower cost in China, You see if look at today based on right now, renminbi exchange rate RMB6.35 per dollar, basically below $11.5 per kg. Today in China, the output is not too much there, less than 1.10. Even you add by 2020, we calculation, let's say, in China, if lower, dollars 11.50 maybe below 270,000 tons. But the consumption last year, it's already 460,000 tons, right? Just like I mentioned that OCI, Walker, their input, their cost is higher basically. I'm not commenting there. So if you look at the history, the ASP below $13 $14 will bounce back. That's major reason because you see it hits the cost, every cost there, those the import poly, the cost. So that's why I bounced back again. Yes, maybe by 2020, the hurdle will go down. It's not $13 $14 maybe go down to $11.50 to $12 then bounce back. So that's why the whole philosophy and a strategy why we are going to expansion that 4A because we want to starting try production by October next year because we can see to starting in the full capacity running maybe possible the Q4 than whole running on 2020. And by 2020, we are the lead player, the low cost high colleague to meet the downstream clients. That's our philosophy. Great. Longgen, Ming, thank you very much. I'll pass it on. Great. Thanks, Phil. The next question comes from Brad Michael of Ampek Research. Please go ahead. Hey, guys. Good evening. Thanks for the question. Can you talk about the tone of the market so far as with customers? Would you say the market is 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, our major clients, I think, is like Longqi, like Jinko, like Songkran, also is Asia company. Zhongkuan is maybe you're not familiar, it's a 22 gigawatts by the end of this year on the wafer capacity. Then also cleaner, then also a lot of I think more than 10 medium clients major, they are, I think, the Asia company. So basically, we are continuing working with them, especially, I think, on the monosilicon supply clients, the major forecast right now is 5 to 6 clients because we didn't have enough right now to supply to our clients. Like LUNQUE right now is 800 I think it's 800 tons per month and they're asking extra. So basically right now, it's not available for them. On the multi silicon, ginkgo, solar, Trina is still our major clients right now and also other clients. So basically right now, we think we are negotiating with the 2 major clients right now try to sign long term contracts to cover maybe 3 to 4 years next 3 to 4 years supply based on our expansion. Maybe Ming can Yes. I would say the market is very tight for polysilicon power, particularly for the higher grade for the monocrystalline solar type of products where we don't have enough products to serve our customers and 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 a mono and 40% is, I think, is multi. But for the Q2, I think as a percentage, you continue to increase to 70% to 80%. So basically by the end of this year, I think just based on right now the capacity, okay, I think maybe around 80%. But the 3B is 100% is mono. So next year, I think 35,000 tons to more than 90% is smaller. Then the 3 I think 4a that additional 35,000 tons expansion by 2020, I think also is 100% for the mono. So basically by 2020, I think we should be like 95% is mono. Yes. I would say the key difference for us compared to a lot of our other polysilicon producer peers, particularly within China is we're one of the very few that could deliver the mono grade type of products in very large quantities in a very stable supply. And this is very much in demand right now. Yes. I thought it was harder to ramp up the higher quality capacity. How have you guys been able to do that so quickly this year or to convert to higher quality output? I think the major, I think, technology, I think, that we have is on the finished products departments, then also on the, I think, recycling, technology. I think I cannot specifically to detail. The reason is because we have more innovation and know how, a prior 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 in 2008. So that's why we're learning from our experience. Today, only few, why say only few can manufacture monosilicon, basically TDA and another small one player. So if you look at that, industry everybody knows that. We I think at the lower cost compared to TVA, because TVA even they run their own electricity power plants. You can look at their financial statements and compare the gross margin, you can see the cost. Basically, for example, like monosilicon, they have to further clean to selling to the clients. We need them to clean. Our finished product department is all starting the depository come out broken, all is automatically and working on that. So basically, it's a lot of, I think, technology know how or operation, key data, all those stuff. Yes, Brian. I think it is a very steep learning curve to do this. We're talking about removal of elements like iron, boron, phosphorus, carbon, oxygen from the silicon on a part per billion basis. So I mean for some of our competitors who are used to supplying internally, for example, for all multi crystalline type of production, they have no motivation to go through the learning that we did. It took us maybe 3 years working with some of the leading monosolar technology companies, even companies that was doing Enty. So I mean, we went from 10%, 20% to now, it's only 80%. It takes a long time to do this. Thank you. Just last question is on the supply growth. Some 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? And what if you consider the reduction of grams per watt due to 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, oil consumption in China because of the Weibo manufacturing mostly in China, right? So last year, total is 460,000 tons last year, of which I think 160,000 tons import from OCI and Awakka. Then in China, total manufacturing is 300,000 tons. So you have to look, there are 300,000 tons in China. I think the top ones you see are 75,000 tons. If you look, then TDU is 30,000 tons. Then Dachan and Tongwei is 20,000 tons. But 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, I think a major maybe around like what I say is more than 200,000 tons, the cost is about $11.50 per kg, okay? So yes, then the new, I think, capacity investments come in. And today, I think the first one is New Hope, New Horizon or New Call, right? I think the first production line is 150,000 tons I think 15,000 tons. Starting pilot production is end of 2016. So we still didn't see the sellable quality used by the big player downstream weaver manufacturing. They are still working hard on that. Maybe I think later they can I think to ramping up their output? But I believe I think like Tongwei, TVA just declared 36,000 tons and then maybe come out early 2020. And also GCL declared 40,000 tons, but I think first 12,000 tons will come out at the end of this year. So basically, what I say, the lower cost, what I say is below the cost is below $11.50 is not available there. What I'm calculation here, this year maybe around 100,000 tons, next year maybe around 200,000 tons, then by 2020 is around 270,000 tons is there. So that's why I answered your question, okay? So if demand supply is all the demand, then I think the high cost, especially imports, then also the high cost Chinese producer, those are high cost about $11.50 maybe will be wiped out, will be consolidated. Then consider also the demand side, you just mentioned that. Yes, I agree with you. Mono silicon, because of the high efficiency, per watt, actually per watt consumption silicon has go down. But you have to consider that. Today, I should mention that the installation per watt total cost in China is RMB4 per watt. That's equivalent how much, dollars 0.80 per watt. Then if you look at the sunshine, you can generate, let's say, 1.2, 1.3 in the Eastern Coast of China, right? So what's the return? It's a high return there. So the demand side, what I think is a potential robust globally, I think it will continue to grow. What I think this year, last year, it's around 90, 80 gigawatts. This is definitely, I think, will go to 110 gigawatts. But if conservative people think it is like 105, but also aggressive 120. But I think the consumption of silicon will continue to go up. The reason why because the monosilicon poor capacity running, the multi still not shut down. The wafer capacity is still running. The only middle and small and medium wafer facilities were shut down. So the capacity will continue running. Now especially in China, people have to know that even top rider projects they see is not in store. In 2017, still have a lot of shift to 2018, 2019 to install. So basically, what I think potentially this year, the demand should be not below 406,000 tons on the silicon side. I think maybe that increase if the installation of the downstream, let's say, increased 20%, let's say, but silicon definitely will increase because of high efficiency, we trade off some, but at least we increased like 10%, 5% to 10%. Michael, did I answer your question? Yes, thank you. Yes, 110, 120 demand sounds right to me. And also consumption maybe in the working processing. What I'm saying working processing because you see the multi silicon capacity is still there, the wafer capacity is still running. Yes. Just last clarification is what's your assumed grams per watt consumption this year just on average for the industry compared to last year? You're talking about the whole tire and Monet? I guess I was asking for both, if you want to break them out separately. I think I have the figure there. I think for the MoTi, maybe around like 4.2, 4.3 grams, okay, per watt. For the mono it's around 3.5 to 3.6. It depends on the diamond saw, you see right now continue to become thin. Right now change to 70 to 65, 60, 60 millimeter, whatever. So yes, I think for a while, I have to say, okay, calculation, that's not here, should be here, let's say. Do you have an average number for last year and this year just I think I have the time for you, let's say. Yes, basically, I think right now, I just tell you what we're doing, okay. The piece is like wafer right now. I think MoTTAN maybe around like a generate around like a 4 point 5 watts and for the mono is around like 5.8. So it's easy for you to calculation. I think for piece consumption, yes, is around like 4.5 grams. 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. The conference has now concluded. 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