Earnings Call: Q2 2017

Aug 8, 2017

Good day, and welcome to the Docco New Energy 2017 Second Quarter Results Conference Call. All participants will be in listen only mode. Please note that today's event is being recorded. I would now like to turn the conference over to Mr. Kevin He of Investor Relations. Please go ahead. Hello, everyone. I'm Kevin He, the Investor Relations of Daqin New Energy. Thank you for joining our conference call today. Daqo Union Energy just issued its financial results for the Q2 of 2016 2017, 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 Doctor. Dongda Yang, our Chief Executive Officer and Mr. Min Yang, our Chief Financial Officer. The call today will feature an update from Doctor. Yang on market and operations and then Mr. Yang, who will discuss the company's financial performance for the Q2 of 2017. 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 that are filed with or furnished to the Securities and Exchange Commission. These statements only reflect our current and preliminary view as of today and may not 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 in the 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 in the U. S. Dollar solely for the convenience of the audience. Without further ado, I now turn the call over to our CEO, Doctor. Yao. Everyone, and thank you for joining our call today. We are pleased to report that the Q2 of 2017 was a solid quarter with new records on both polysilicon production value volume and external sales volume. During the quarter, we produced the 4,993 metric tons per second and sold 4,497 metric ton to external customers. During the quarter, we conducted various experiments to improve polysilicon quality, particularly for the monocrystal grade polysilicon, which had a slight impact of overall production cost and volume in Q2. However, as a result of this experiment, we are seeing meaningful improvement in the polysilicon quality. We made a change to our production process and the parameters, added devices for contamination removal as well as implemented improved process to reduce surface contamination. With the combination of these efforts, production volume as well as the shipment of mono crystal line quality of polysilicon hit the record high in June. With strong demand for PERC and monocrystal PV products, we are seeing strong increase of monocrystal wafer capacity in China, including those of our existing customers. Overall, we believe mono crystalline wafer capacity is expected to increase in from approximately 30 gigawatts in 2017 to more than 50 gigawatts by 2019, an increasing of more than 60% over the next 2 years. This brought us well for sustained strong demand and the pricing for monocrystal quality polysilicon and Daqo is well positioned to be the leading supplier to this market segment. At the end of the Q1, due to the downstream customer inventory management, ASP fell in April, but it started to recover in May, market demand and pricing improved throughout the second quarter, with ASP in June approximately 15% higher than in April. In terms of PV end market, China installed 24 0.4 gigawatts of solar PV in the first half of twenty seventeen, representing a new record and a 9 percent increase from the first half of twenty sixteen. The full year of 2017, China's annual PV installation forecast is currently expected to exceed 35 gigawatts. Based on discussions with our customers, we believe that China PV market demand continue to be strong, driven by top running projects, poverty aviation projects as well as distributed generation. Globally, the U. S. And India markets are also seeing strong PV product demand. With a much stronger than expected solar PV installations in China globally, the annual total global solar installation in 2017 is likely to exceed 80 gigawatts. With strong and better than expected anticipated downstream market demand. Starting in late July, we began to see a significant polysilicon shortage in China market with polysilicon pricing continue to rise. As of today, current spot market for polysilicon price is approximately 25% to 30% higher than Q2 average and appears to be going higher. Even as the current high pricing, We are seeing strong customer requests and orders that far exceed our ability to supply. In June, the Chinese government announced its investigating capitated power plants in Xinjiang for violation of regulatory policy and environmental standards. We believe the government investigation as well technical and other issues is resulting in serious delay and the production problems at our competition. And the problem is likely persist in the medium term and further restricting available polysupply. During the Q2 of 2017, the company generated $12,100,000 in net income attributable to Daqo New Energy shareholders and $29,800,000 in EBITDA with EBITDA margin of 39.2%. In particular, our operating cash flow remained strong. In the first half of twenty seventeen, we generated a $73,600,000 in net cash provided by operating activities. Going forward, we will continue our efforts to improve polystyrene quality throughout the year with our high product quality and the stable supply capabilities, we continue to be a supplier of choice with strong demand for our high quality polysilicon from our diverse customer base. Now let me provide the outlook for the Q3 of 2017. Our annual maintenance for Xinjiang Polysecond Facility is scheduled for the late September October. The annual maintenance is anticipated to impact production volume by approximately 2 weeks. As a result, we expect to produce 4,200 metric ton to 4,500 metric ton polysilicon and the sale approximately 3,700 metric ton to 4,000 metric ton to external customers during the Q3 of 2017. But above external basis, sales guidance exclude shipment of polysilicon to be used internally by our Chongqing Solar Wafer Facility, which utilized polysilicon for its own wafer manufacturing operation. Wafer sales volume is expected to be approximately 25,000,000 to 25,500,000 pieces in the Q3 of 2017. Now I will turn the call to our CFO, Mr. Lin Yang for financial updates. Thank you, Doctor. Yao, and good day, everyone. Thank you for attending our call today. Now I will provide the financial updates for the Q2 of 2017. Revenues were $76,000,000 compared to $83,800,000 in the Q1 of 2017 $71,000,000 in the Q2 of 2016. Revenue from polysilicon sales to external customers were $61,100,000 compared to $70,400,000 in the Q1 of 2017, and $50,500,000 in the Q2 of 2016. External polysilicon sales volume was 4,497 metric ton, increased from 4,223 metric ton in the Q1 of 2017 and 2,931 metric ton in the Q2 of 2016. The average selling price of polysilicon was $13.58 per kilogram in the Q2 of 2017 compared to $16.66 per kilogram in the Q1 of 2017. The decrease in polysilicon revenue as compared to the Q1 of 2017 was primarily due to lower ASPs, partially offset by higher polysilicon sales volumes. Revenue from wafer sales were $14,900,000 compared to $13,400,000 in the Q1 of 2017 and $20,500,000 in the Q2 of 2016. Wafer sales volume was 27,000,000 pieces compared to 22,400,000 pieces in the Q1 of 201725,000,000 pieces in the Q2 of 2016. Gross profit was approximately $24,200,000 compared to $35,900,000 in the Q1 of 2017 and $29,400,000 in the Q2 of 2016. Non GAAP gross profit, which excludes costs related to the nonoperational polysilicon assets in Chongqing, was approximately $24,800,000 compared to $36,900,000 in the Q1 of 2017 and $31,200,000 in the Q2 of 2016. Gross margin was 31.9% compared to 42.8% in the Q1 of 2017 and 41.4% in the Q2 of 2016. In the Q2 of 2017, total costs related to the nonoperational Chongqing Polygon assets, including depreciation, were $500,000 decreased from $1,000,000 in the Q1 of 2017 and $1,800,000 in the Q2 of 2016. Excluding costs related to the nonoperational Chongqing polysilicon assets, the non GAAP gross margin was approximately 32.6% compared to 44% in the Q1 of 2017 and 43.9% in the Q2 of 2016. Selling, general and administrative expenses were $4,500,000 compared to $4,100,000 in the Q1 of 2017 and $3,700,000 in the Q2 of 2016. The increase in SG and A expenses compared to Q1 was primarily a result of higher selling expenses related to increased shipment volume as well as higher professional fees recorded for the quarter. Research and development expenses were approximately CAD 300,000 compared to $400,000 in the Q1 of 2017 and $100,000 in the Q2 of 2016. The research and development expenses varied from period to period, reflecting the R and D activities that occurred in such period. Other operating income was $800,000 compared to $800,000 in the Q1 of 2017 and $600,000 in the Q2 of 2016. Other operating income was primarily composed of unrestricted cash incentives that the company received from the local government authorities, the amount of which varies from period to period. Operating income was $20,200,000 compared to $32,200,000 in the Q1 2017 $26,100,000 in the Q2 of 2016. Operating margin was 26.6% compared to 38.4% in the Q1 of 2017 and 36.8% in the same quarter of 2016. Interest expense was CNY 5,300,000 compared to CNY 4,300,000 in the Q1 of 2017 and CNY 3,500,000 in the Q2 of 2016. The sequential increase in interest expense was primarily due to higher bank fees and interest charges recorded for the quarter. EBITDA was $8,800,000 compared to $41,700,000 in the Q1 of 2017 and $34,700,000 in the Q2 of 2016. EBITDA margin was 39.2% compared to 49.8% in the Q1 of 2017 and 48.9% in the Q2 of 2016. Net income attributable to Doctor. New Energy shareholders was $12,100,000 in the Q2 of 2017 compared to $22,900,000 in the Q1 of 2017 $19,800,000 in the Q2 of 2016. Earnings per basic ADS were $1.15 in the Q2 of 2017 compared to $2.18 in the Q1 of 2017 and $1.90 in the Q2 of 2016. As of June 30, 2017, the company had $49,800,000 in cash and cash equivalents and restricted cash compared to $61,200,000 as of March 31, 2017. As of June 30, 2017, the accounts receivable balance was $3,800,000 compared to $13,100,000 as of March 31, 2017. As of June 30, 2017, the notes receivable balance was $10,500,000 compared to $11,700,000 as of March 31, 2017. As of June 30, 2017, total borrowings were $219,300,000 of which $123,000,000 were long term borrowings compared to total borrowings of $236,000,000 including $129,200,000 of long term borrowings as of March 31, 2017. And as of the end of the Q2 of 2017, our debt ratio decreased to 52.8 percent from 57.2% at the end of the Q1 of 2017 and 59 point 8% at the end of 2016. For the 6 months ended June 30, 2017, net cash provided by operating activities was CNY73.6 million, increased from CNY66.6 million in the same period of 2016. For the 6 months ended June 30, 2017, net cash used in investing activities was $36,000,000 dollars compared to $37,600,000 in the same period of 2016. The net cash used in investing activities in 2017 was primarily related to the capital expenditures of Xinjiang Phase IIIa projects as well as our technology upgrade projects. For the 6 months ended June 30, 2017, net cash used in financing activities was $23,400,000 compared to net cash used in financing activities of $13,500,000 in the same period of 20 16. The increase was primarily due to repayment of bank loans and related party loans. And that concludes the official part of our presentation. Now let's have the Q and A session. We will now begin the question and answer session. And our first question comes from Philip Shen of ROTH Capital Partners. Please go ahead. Hi, everyone. Thanks for the questions. In terms of ASPs, I think you had said in your prepared remarks that the current pricing, let's say, spot pricing of poly ASVs in China are 25% to 30% higher than your Q2 average. So that suggests ASPs might be close to $17 per kilogram right now. I think what we saw last week from some pricing sources was that spot pricing is closer to $16 Can you comment on whether the $17 number makes sense? And then what are your expectations as to what the blended average Q3 could be and where pricing could go in Q4? Okay. So, Phil, thank you for the question. And I think we're talking about 30 high end is a percentage increasing is positioned for the monocrystal wafer polysilicon, which should require much higher quality compared with average polysilicon for solar normal solar grades. As for the pricing going, we still see strong demand in for the market, particularly in this season, Q3, lot of poly supply have maintenance scheduled maintenance in August September. So we see stronger than we expect in the 3rd quarter demanding, driving the price up. We believe this trend will continue in the 3rd quarter, although we still don't have clear I can see the 4th quarter pricing. But average wise, we're thinking the second half of Q3 will be stronger than much stronger than Q2, like we said. And Q4 maybe will be a little bit weaker than Q3. That's the normal people are seeing, but it's too far to see the Q4 pricing at this moment. Okay. Thanks, Conga. As it relates to the supply constraints, you talked about the schedule and maintenance, but then I think there was a fire at one of your peers. How much impact do you think that fire ultimately had on supply, number 1? And then also number 2, how much supply may be constricted as a result of the environmental investigations that are ongoing in Xinjiang as well? Well, okay. So we cannot particularly comment on individual competitors. But generally speaking, the new startup for polysilicon manufacturer, as we heard, is they're facing some environment and regulatory policy issues. Regarding you mentioned the 5 in particular the competitor, but as a matter of fact, the quantity restricted from that event is very limited. We heard is several biggest supply polysilicon, they have restricted some products due to some technical difficulties in China. That gave a more actually impact for the supply side. So as a result, we will try to continue small production for August, but we also will do maintenance in the September. So generally speaking, for 3rd quarter, there's more shutdown for maintenance and or the expected the expanded capacity in Xinjiang is not as high as the people expected on the first half of this year. So that's what also the demanding for the polysilicon is stronger than people expected after June 30. So this all these things added together driving the demand, the price imbalance driving the price is going increasing from Q2. Yes, that's what we generally see. Although, we don't do not have particular clear information regarding what's the problem some of our competitors are facing, but we see much less polysecond releases on those supplies. Great. Okay. One more here in terms of capacity expansion. Can you share your latest view on capacity expansion? How much longer do you think you need to wait before you decide what new information do you need to help you make that decision? I gather that it's not just an internal decision, but rather you're also thinking about what is happening on the supply side overall. So what can you provide some color as to what are the key factors to help you decide if you will expand? And then also, can you expand beyond Phase 3b? Would you consider that if the market merits it? Okay. Yes. So Phil, thank you. So we okay, our decision to future for expanding our capacity is based on two things. One is market is supply balance the supply demand balance, that's important. Secondly, also we mentioned that in Q2 actually in first half of this year, we did a lot of experiments trying to explore the high quality polysilicon, their quality. So if we want to expand in future, what we can say is one of the very key standard is that we're positioned for high end market, which means our position definitely is for mono crystal wafer, polysilicon or even higher quality. If we have confidence for those technologies mature enough, we can make a decision to expand. And so we are not competing with larger volume of capacity of, I will say, for standard polysilicon making in China. We are positioning ourselves and the leading supplier for high quality polysilicon manufacturer. And we are competing with those leading companies like international companies for the high end market. So once we think that is a technical viable, we can make a decision at that point. And technically and for the projects we are doing study is very smooth. We think we can conclude our results very soon, I would say. If not all completed at this moment, we will try to complete it very soon. So that's our key decision maker condition for considered for our future expansion. And at this moment, we are not considering a lot after Phase 3b beyond that. So we're trying to maybe step by step. If we want to do next, we probably will complete the 3B first. Okay. Very helpful. Thank you. One last one, we'll pass it on. Okay. That's where we're going. The best is like a 25,000 metric ton beyond. That's rent level. Thank you, Phil. So, great. One last one, I'll pass it on. In terms of you mentioned higher quality poly. Can you give us some metrics to help us gauge where you stand today? So for example, in Q2, I may have these terms wrong, so feel free to change the criteria if you need to or want to. But I think there's different levels of electronic grade that you guys have talked about in the past. So what percentage of your production in Q2, for example, was the different levels of electronic grade? And then how do you expect that to trend through Q4? And then if you launch Phase 3b, how much more could it become? Thanks. That's right. Okay, great. Thank you. So in the polysilicon market in China's national standard, we have 6 different grades, 3 for electronic and 3 for solar. So the highest level is electronic grade 1 and the next one is grade 2 and the third one is electronic grade 3 and then solar grade 1, solar grade 2 and solar grade 3. At current in China, most first tier polysilicon manufacturer can all beyond like a solar grade 1, average speaking. And DQ right now at Q2, our polysilicon quality above electronic grade 3 is about 80% of our total production. So we have some very small portions which like electronic grade 1. And there are significant portion is the majority in the grade 3 and between grade 3 and grade 2. And there are small portions above grade 2 at this level. Now for the future expansion, we target our production at electronic grade 1 level. So that's still have so which means we were using more advanced technology and equipment for our future expansion, if we will do expansion in future for Phase 3b. I hope that this answers your question. Yes, absolutely. Thank you. I'll pass it on. Yes, good. Our next question comes from Sheng Zhong of Morgan Stanley. Please go ahead. Hi, management. Congratulations on your good results. So a follow-up question on your maintenance schedule. You mentioned in September, you will do the maintenance. But last year, the maintenance is in very late September and early October. So is it possible that you will postpone your maintenance this year because of the strong demand and the strong price? So last year's maintenance is a little bit to do with expansion project. So we're doing one maintenance doing 2 purpose. For this year is slightly different. So we were using innovative first time we're trying to shut down the half of the line and while maintaining the manufacturing underlying. So that will maximize our output. So the impact for the production, as we said, maybe roughly about 2 weeks instead of more than 2 weeks. The last time we did more than 3 weeks actually. So huge impact for production. So this time, if you notice our guidance for Q3 is much higher compared with the last year. That's in two facts because we will we're dividing 1 maintenance by 2 different schedules in September October and each with much less impact compared with last year. So total output impact is include acoustic for about 2 weeks. So we're expecting like a lot freight about 1 week for each. So that's the guidance. We probably will not change much unless really our customer driving say, so currently we got a lot of calls from our customer for supply. We do our best that we can to supply. So and some customers say they are facing possible shutdown because of shortage of polysilicon. We don't like to see that happening, but our ability to supply is limited. So we'll try our best in August. And in September, we really need to do the maintenance because the maintenance is not only for the mandatory things and also for the safety guarantee our chemical plant for long term running. So we definitely most likely will do in September according to how the schedule is. And of course, we are waiting for other effects is like hardware delivery for our supply is ready, then we can immediately study on maintenance in September. So that's our only limitation is on the hardware availability, the equipment and the hardware. If once we have those things, we will do in September. And most likely, we'll not change even the we also in preparation for maintenance, we also informed our key customers about our schedule. So we ask them to do their plan accordingly and in Q3 and Q4. Understand. Thank you very much. And second question is about the currently, still there is there are still very huge import number to import policy come to China market. So wondering if you have any updates on the anti dumping investigation on the Korean policy count? And is there any timeline for China government to make some decision? We have no decision made already yet. But this is the Chinese government's decision. So I do not thinking we will know before even the like a Korea company and we will know before. According to the announcement schedule, most likely will be in November, right? So November will know the results. So unfortunately, I think we know same as maybe for example, like the Korea Polysecond Manufacturers, they will know at the same time. So by November, most likely, they will announce it. But as you know, this is not really pure economic issue, it's critical and depends on the country relationship and changes could be happen. So we can't it's not only the same boat economic issue. So it's very complicated. So we think about November will be done probably. Okay. Yes, that's great. That's from me. So I jump to the queue. Thank you very much. Our next question comes from John Seifried of Luminous. Please go ahead. Hi, guys. Just two questions, if I could. First one, can you give us a sense, if you haven't talked about it already, of kind of where you think cash costs might be in the polysilicon segment by year end and what sort of scope is there to continue to bring those down? And then secondly, when I look at the ASP that was realized in the poly segment, it was a little bit lower than I would have thought. Typically, because of your high purity, you guys seem to get a little bit of a premium above spot. So was there anything particular in the quarter that led to a slightly lower ASP? Or has something changed a little bit more in the market? And should we expect a premium to return as we look in the second half of the year? So, yes, we so as you know, the Q2 had the ASPs very weak in China. And also we have some delay in the order and shipment and so for to the customer side. So during the Q2 almost like ASP steady, steady is going up a little bit, but not very high in the June and the June compared with the current price. So we do see you're right, if you I don't know, if you look at the average price wise, maybe slightly below, but actually because of a little bit of lagging in the price response to our shipments. So normally we for example, we normally fix the price to add 1 month before. So basically for example, our April price is most likely settled by the second half of March, which is a very low point of price, so which give us April prices very, very lower than actual April price. And same to the May June. So that's probably the reason. Yes, we do not sell our spots and price immediately. We do work with our long term customers with 1 month ahead of schedule. So that's probably the reason. Yes. Perfect. Thank you. And on the cost side, where do you think cash cost? Yes. Cost side right now, cash cost is about $7 and but that's the manufacturer cash cost, not include financial costs and interest costs and those sales and administrative costs. So how low we can go manufacturing costs? We believe eventually, we can go to as low as $6 but it's long term. It's not like immediately, probably within 2 years. I think we can do with cash cost about $6 for the 5 years. Let's say the end of 2018, dollars 6 is a good target. Yes. End of 2018 and the beginning of 2019, I think we can do that. But I think even in Q4, you will start to see some opportunities for cost reduction. We're implementing new technology and new upgrades that should reduce electricity usage and energy usage in general, so there's raw material reduction. So you start to see some effect starting in Q4. Okay, great. Thanks guys. Okay, thank you. Our next question comes from Luca Xu of Deutsche Bank. Please go ahead. Hello, Doctor. Yao. Can you hear me? Yes. Yes, yes. Very clearly. Thank you. My first question is that, can you please share with us about the poly shipment mix between mono and multi customers during the past quarter. If I remember correctly, in Q1, you shipped around 20% to 30% something. And what's your expectation in the next few quarters? Okay. So next two quarters, so currently we are targeting our shipment is around 40%. So there's we're trying to set up a very high standard for mono wafer polysilicon. So on the two requirements, one is the purity wise, the electronic the impurity level should meet electronic grade 3 or above. So that's the first requirement. 2nd requirement is that we want to very dense polysilicon raw material. So that's the combination of those two characteristics of the polysilicon. We were shipped before as a mono wafer polysilicon. As a result, I think we shipped to various of our customers and so far almost like 100% in the past their quality control. So this is we will continue to add. And on the same side, our customer demand is higher. They want to ship a higher percentage of our product as mono wafer polysilicon. So we also do some experiments trying to little bit the testing the other material can be using as well. So we have a joint development with our key customers to see if we can expand the shipment. At this moment, we still target our percentage roughly about 40%. And until we have a new experiment like Ming mentioned, we'll do a lot of experiment with our customers. If that's positive, then we probably will continue to expand our percentage. Otherwise, we will still within that commitment as a 40%. As we say, right now, in 2017, the mono wafer supply may be consuming still above 30% to 40% range, right? In China, majority mono wafer being polysilicon in the front of China and also imports. But in future, maybe 2 years later, that would be improved to more than about 50% in the 3 years later and probably require a lot of Chinese poly as a bigger portion will be suitable for the mono wafers. So that's our goal. And so in next 2 years, we will expand our percentage increasing from 40% to maybe 60%, but needs a new include a new capacity if we end up or technology improvement for our production. Okay. Got it. Thanks. And so what's the price difference between the poly for mono versus multi? Any comments? Yes, several mono wafer segment. I think for n type mono, it's the most high requirements for whole sectors because those are for like for example, typically like for some towers, IBC applications for N type mono is very, very high quality. So require is much carrier, immunology carrier lifetime is much longer than compared with standard P type. So those wafers require much better polysilicon quality. Normally, we're choosing the best material and we're also asking for higher price compared with normal ones. So that's definitely. For the standard P type, right now the difference between that poly compared with the solar grade is very, very small. And there's 2 factors. 1 is we just starting shipping these things to our customer. And normally, most of the customer, they're also receiving our polysilicon for mono and multi wafer applications. So we combine those 2 together. So at this moment, the difference is very limited at this moment. But we as we said, in future, because demanding for the mono wafer polysilicon will increasing significantly as the fact also require higher standard for quality, I think the price we'll see difference in the second half of this year. Okay. So this you mean small premium. So can I understand it as like below 10% something? Yes, yes. You can see that. Around 3% to 5% currently. And we expect that to expand. So is it possible to expand beyond 10% in second half, right? Maybe not 10%. Maybe not 10%. But because as you know the China polysilicon is just starting to using as a mono wafers in last only a few quarters, maybe 1 year. Traditionally, this market is by imports polysilicon. So they are easier positioned for Ask Premier. Right now, we're competing this field. So at this moment, we enter this new market. We do not put a larger percentage of difference. We are trying to competing as a qualified mono wafer polysilicon supply and first. And once we can largely replace the imports, I think even with positioning lower than the crystal wafer market. Yes. So that's what we think expected, especially as not every polysilicon manufacturer can provide us good quality to qualify as on the wafer supply. So there's a limited supply in the Chinese market, especially if the anti dumping, the decision is made. I think with a lot of imports probably may have faced some difficulty into Chinese market. And that point we see some supply demand imbalance again. Okay. I see. And my second question is on the cost side. So I noticed that the Q2, the cash cost is a little bit higher versus Q1. Is it due to like the currency movement? Or I'm wondering if any cost difference between the poly mono and the multiples? No, no, no. The second quarter statutory cost is not significant. We will still consider it flat, but there's 2 areas we mentioned. One is the Q2, we do a lot of experiments trying to improve the quality of polysilicon. We face some problems and stability in the process, so causing some primitive movement. Although the quality of the polysilicon generally increased, but it's still like 80%. And so but as a manufacturer, we're using more a little bit of more electricity, for example. And also second factor is slightly the impact for the cost is metallurgical grade silicon price is slightly increasing, not significant. But we think we can maintain that. We can manage that in the Q3 and Q4 at this moment. If those factors not increase a lot, We can we proved in the Q3 is preliminary results. We already see our cost that can maintain as low as in the Q1. So this problem can be resolved by Q3, I think. If Q3 we need to look in the general cost is because the maintenance normally will impact some quantity of the production. So if you disregarding that portion, I think that we can improve our cost structure for Q3 and Q4. Okay. Thank you. So can you remind us again your total cost target by end of this year and maybe for next year as well? Okay. So for this year, we will say we maintain is about between $8.50. Yes. So it's like we're targeting like $8 maybe $0.25 at the middle point at the end of this year when exiting the 2017. Once we go into 2018, because we will we are doing some during this common term maintenance in the September, October, we will improve some debottlenecking for our lines. So we were increasing likely, we're increasing roughly about additional 1,000 metric tonne output for 2018 compared to 2017, if we do not study any new capacity expansion. So we're expecting 2018, the overall production volume were very close to about 20,000 metric tons, so which will give us a few reductions. So most likely target $2.8 by 2018. Okay. Thank you. And my last question is about, again, about the capacity expansion. Given maybe you have learned that the government has set a very encouraging solar target by next few years, which has beat the market expectation. So perhaps this may help, like the demand expectation. So given that, will you consider to expand your Phase IIIb capacity any soon? So can you give us the specific timeline of this? No. As we said, we are not really consider we will consider market environment, but as you know, we the market environment is not a very important factor for what we're considering. Our capacity right now are only like 20,000 metric ton, to the market about 400,000 metric ton. So and if you look at the market, there are many people who are explaining about 100,000 metric ton for 1 company, so which is really crazy in the market right now. So we are looking into is not total capacity and total demand. We're looking for the area of the market lack of, which is high quality polysilicon. So once we have technology, I think we'll decide to expand immediately. So if we believe we're leading other competitors by 2 to 3 years or more, and we were starting our expansion immediately. Yes. But as you know, at this moment, we still have a lot of research need to be done and a lot of experiment to results need to be find out and then we can make decision very soon. Okay. I see. You have an internal target for breaking through the technology? That's true. Yes, that's true. Yes, we will look into that. And we also see overall the our competition startup like new companies in Xinjiang is much slower than we expected. And also they face some more problems, technical problems and environmental problem and government regulatory policy problems. So those factors those problems threatening to our expansion is much less than before. But a major, major factor we will consider is our own capability point of view is can we make the polysilicon no other people can make in China in next 2 years and then we will do that. So we were competing in the high end with international players most likely instead of majority Chinese power sector makers. So we are positioning our as the leader, top leader runner for quality point of view. It's not for quantity point of view. So that's our strategy will be. Okay. Very helpful. Thank you very much. You're welcome. Thank you. Our next question comes from Paul Straggler of Espalante. Please go ahead. Good evening, guys. Great work this quarter. I'll try to ask 2 quick questions that haven't already been asked. So in terms of your customers, good news for you on the poly side is probably bad news for them on the margin side. Do you happen to know sort of what the current usage rates for poly are on wafers for mono and multi? Sort of how much are they consuming per watt for each type of wafer? Multi is yes, those numbers are changing. Actually multi for mono, they are using Diamond Y. So each watt per gram is reduced a lot. I think very close to like a 4 or something. But for multi crystal wafer, there are 2 different technologies. If we're using slurry cutting, I think very close to 5. But if you do diamondwine cut is also very close to 4%, because we know that it's about 15% to 20% saving of silicon if you switch from one technology to another. So there's that point. As poly price high, actually for average people point of view, they are facing same problem. So, they are if you have advanced technology, you have a high efficiency, you're still leading their competition in the field. The most challenge is right now in China is the mono versus multi. Still it's yes, but because the mono wafer selling price is much higher than multi wafers, so they can absorb the more tolerance of the polysilicon price building price point. Yes, but Is that why we've seen strength in multi wafer pricing recently and a little bit of softness in mono wafer pricing? It's just a shift to it's based on poly supply right now and that it's really hard to find any poly in that electronic grade given supply? So we yes, I think the gap between the mono wafer and the multi crystal wafer pricing is narrow right now a little bit. And it used to be much wider, more than 1. Right now it's pocketless. So which means so it's a dynamic because when the gap is more and then multi crystal wafer will be more attractive for the end market because they can take yes, so that's the so when the multi crystal wafer price increasing to some point of view, than people were choosing to the mono wafers. So market is very flexible and actually is the market is where we're moving through the profit relative for the end market module. One last quick one. So last time we saw a supply shortage, I think REC, Wachter out of their Tennessee plant in Hemlock ended up shipping a lot of supply to Taiwan, which ended up getting shipped into China, either as ingots or raw poly. Has that new coal been closed? Are you seeing any increase in Taiwanese imports of ingots and or poly? And is the government keeping an eye on that? I think the government to keep eye on that. So I think the import from Taiwan is about 1,000 metric tons maybe or less. 700 metric tons. Yes, 700 metric tons. So I think governments are still monitoring that to some point they will take action. So it's a very high risk. I think those are only small companies maybe if you can say, and China has punished a lot of companies in the last 2 years for smuggling any polysilicon into China. So I think people are very, very careful about this. Only maybe I don't I really don't believe any big company will buy those products, only maybe very small companies. Yes, I just want to make sure. Understood. Great work guys. Thank you. 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, and bye bye.