Q1 2024 Daqo New Energy Corp Earnings Call
Operator: Good day, and welcome to the Daq New Energy first quarter 2024 results conference call. All participants will be in a 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 1 on a touchtone phone. To withdraw your question, please press star, then 2.
Good day and welcome to the Doc Q, New energy first quarter 'twenty 'twenty four it results conference call.
All participants will be in a listen only mode.
Should you need assistance. Please signal a conference specialist by pressing the star followed by zero.
After todays presentation, there will be an opportunity to your last question.
To ask a question you May press Star then one on a touchtone phone.
To withdraw your question. Please press Star then two.
Operator: Please note, this event is being recorded. I would now like to turn the conference over to Xiang Xu, CEO. Please go ahead. Hello, everyone. Thank you for joining us today. We hope you have a great day.
Please note this event is being recorded.
I'd now like to turn the conference over to Shang Xu CEO. Please go ahead.
Anita Zhu: Hello, everyone. I'm Anita, the investor relations manager of Daqo New Energy. Thank you for joining our conference call today. So Daqo New Energy just issued its financial results for the quarter of 2024, which can be found on our website at www.dqsolar.com.
Speaker Change: Oh, Hello, everyone I'm Anita Investor Relations of Taco in your energy. Thank you for joining our conference call. Today for example in your energy just issued its financial results first quarter of 2024, which can be found on our website at www huge a geek Houston alert dot com.
Anita Zhu: So today, attending the conference call, we have our Chairman and CEO, Mr. Xiang Xu, our CFO, Mr. Ming Yang, and myself. The call today will begin with an update from Mr. Xu on market conditions and company operations, and then Mr. Yang will discuss the company's financial performance for the quarter. After that, we'll open the floor to Q&A from the audience. Before we begin the formal remarks, I would like to remind you that certain statements on today's call, including expected future operational and financial performance and industry growth, are forward-looking statements that are made under the safe harbor provisions of the U.S. The Private Securities Litigation Reform Act of 1995.
Speaker Change: So today attending the conference call, we have our chairman and CEO, Mr Challenge Xu our CFO, Mr. Ming Yang and myself the call today will begin with an update from this issue market conditions and company operations and then Mr. Yang will discuss the company's financial performance for the quarter after that well open.
Ming Yang: The floor to Q&A from the audience.
Ming Yang: 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 are made under the safe Harbor provision something you watch private Securities Litigation Reform Act of 1995.
Anita Zhu: These statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained herein. 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 uncertainty.
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.
Ming Yang: 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 reflect our current and preliminary view as of today and maybe subject to change our ability to achieve these projections is subject to risks and uncertainties.
Anita Zhu: 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'll 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. Mr. Xu will make his remarks regarding current market conditions and company performance. Now, Mr. Chairman, please start your speech.
Ming Yang: 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 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.
Mr. Hu: For U S dollars solely for the convenience of the audience. Mr. Hu will make his remarks Rudy regarding current market conditions and company performance in Chinese, which I'll translate into English after he finishes now I'll turn the call towards heal.
Xiang Xu: Thank you, Anita. I am Xiang Xu, the CEO of Daqiu New Energy. Thank you for attending today's exchange meeting. We will continue to optimize production and operation. Xinjiang.
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Hu: Thank you Anita.
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Xiang Xu: The efficiency and production of the two large oil refineries in Inner Mongolia have been improved, and the total production in India is 62,278 tons. [inaudible] 1260, 1260, the Limogu 5A project contributed 46% of the total output of the first quarter. Through the steady improvement of the development results of the two factories, we have further accelerated the transition of the N-type.
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Xiang Xu: The N-type products increased from 67% in December last year to 72% in March. Compared with the end of last year, the cost of our production this quarter has decreased by 40%. As of the fourth quarter of 2023, it has further decreased by 2%. In 2023, the average production cost for the first quarter will be US$6.37 per kg. , Even at the end of the first quarter of 2020, the company maintained an objective $2.7 billion cash balance. The cash balance of the company's cash and one-week vote is a total of $2.9 billion.
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Xiang Xu: We expect that in 2024, the total production volume of the second quarter will be between 60,000 and 63,000 tons. We will maintain the production volume of the first quarter at a minimum of 10 tons. We plan to complete the construction of the 5G project in the second quarter of 2024. Cheers, and catch the toast.
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Xiang Xu: , 20242830 Compared to the same growth rate in 2020, 40% is 0%. ,, , The decline in the price of natural gas has led to a steady rise in the demand for natural gas in the entire downstream region. As a result, the total price of natural gas has remained at 65 to 70 yuan per kg in the N-type and 55 to 60 yuan per kg in the P-type. However, in July and March, the downstream discharge plan was lower than expected.
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Xiang Xu: [inaudible] Since last week, the price of nuclear power plants has plummeted to 54 yuan per kilogram. According to our past experience, we believe that the low price and market situation will eventually build a healthier market environment. When the cost is too high, the quality has not yet reached the market N-type transformation standard, and enterprises are struggling to produce. After the final elimination, the industry will welcome rational production capacity and supply demand.
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Xiang Xu: The problems we are currently facing in the production process will also be gradually resolved. We expect that demand will recover in the short term after excessive inventory consumption. China's long-term renewable energy policy will also continue to promote the expansion and installation of light bulbs. We firmly believe that the light bulb industry will return to a rational profit level and bring better profitability. On the Japanese side, we believe that maintaining a healthy storage level is extremely important. Therefore, by the end of the first quarter, our cost of storage will be about two weeks. Now Anita will translate for me.
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Anita Zhu: Hello everyone, this is Anita. Thank you for joining the call. So I'll now translate our CEO, Mr. Xu's remarks. During the first quarter, we continued to optimize our manufacturing operations and made improvements in both yields and throughput at our two poly facilities. Total production volume for the quarter was 62,278 metric tons, which was above our expectations and represented an increase of 1,264 metric tons compared to the previous quarter. Our Inner Mongolia 5A facility contributed 46% of our total production volume for the first quarter.
Speaker Change: Hello, everyone. This is anita thank you for joining the call. So I will now translate our CEO Mr shoots remarks.
Anita: During the first quarter, we continue to optimize our manufacturing operations and made improvements in both yield and throughput at our two facilities.
Anita: Total production volume for the quarter was 62278 metric tons, which was above our expectations and represented an increase of 1264 metric tons compared to the previous quarter.
Anita: And I'm not going to be a five year facility contributed a 46% of our total production volume for the first quarter.
Anita Zhu: Through achievements in R&D and significant purity improvements at both facilities, we further increased our anti-product mix from 60% in December last year to 72% in March. Compared to the end of last year, production costs trended down over the quarter, decreasing further by 2% from Q4 2023 to an average of $6.37 per kilogram in Q1 2024. For the quarter, we generated $77 million in EBITDA.
Anita: They will achieve renting R&D a significant charity improvements at our thought I. Both facilities. We further increased our anti product mix from 60% in December last year to 72% in March.
Anita: Paired to the end of last year, our production costs trended down over the quarter decreasing further by 2% from fourth quarter 2023 to an average of 6.7370 U S dollar per kilogram in the first quarter of 2024.
Anita: For the quarter, we generated 77 million and EBITDA by the end of first quarter 2024, the company maintain a strong cash balance of $2 7 billion.
Anita Zhu: By the end of first quarter 2024, the company maintained a strong cash balance of $2.7 billion and a combined cash and banknote receivable balance of $2.9 billion. We expect second quarter 2024 total poly production volume to be approximately 60,000 metric tons to 63,000 metric tons, similar to that of first quarter 2024 as the company maintains full production. We expect to finish construction and begin initial pilot production at our new Inner Mongolia Phase 5B facility in the second quarter of 2024 and expect to ramp up to full production by the end of the third quarter of 2024.
Anita: And our combined cash and bank note receivable balance of $2 9 billion U S dollar.
Anita: We expect second quarter 2024, total poly production volume to be approximately 60000 metric tons of 63000 metric ton similar to that of first quarter 2024 out of the company maintain full production.
Anita: We expect to finish construction and began initial pilot production at our new inner Mongolia phase five P facility in the second quarter of 2024 and expect to ramp up to full production levels by the end of third quarter of 2024 as a result, we anticipate full year 'twenty 'twenty four production volume to be in the range of 2000.
Anita: 280000 metric tons to 300000 metric tonnes, approximately 40% to 50% higher than that of 2023 with 115 years of experience in poly production as well as a fully digitalize our integrated production system that optimizes operational efficiency will continue to increase our N type product.
Anita Zhu: As a result, we anticipate full-year 2024 production volume to be in the range of 280,000 metric tons to 300,000 metric tons, approximately 40% to 50% higher than that of 2023. With more than 15 years of experience in polymer production, as well as a fully digitalized and integrated production system that optimizes operational efficiency, we'll continue to increase our end-time production in this product line. During the first quarter, the solar market initially showed signs of strength as we headed into the Chinese New Year holiday in February.
Anita: And the product mix.
Anita: During the first quarter. The first solar market initially showed signs of strength as we head into the Chinese new year holiday in February.
Anita: By the production cuts and downtime as usual during the holidays polysilicon demand had been strong pre holiday boyfriend manufacturers kept utilization rate unchanged or even higher in anticipation of higher demand and better product pricing post holidays.
Anita: The general Polysilicon price change well at 65 to 70 RMB per kilogram for N type and 55 to 60 RMB per kilogram for P type during this period.
Anita: However, with weaker than expected production plants downstream starting March the wafer sector faced significant pressure from accumulated inventory and negative margins.
Anita Zhu: Despite the production cuts and downtime as usual during the holidays, polysilicon demand had been strong pre-holiday as wafer manufacturers kept utilization rates unchanged or even higher, in anticipation of higher demand and better product pricing post-holiday. The general polysilicon price range was 65 to 70 RMB per kilogram for N-type and 55 to 60 RMB per kilogram for P-type during this period. However, with weaker-than-expected production plans downstream starting March, the wafer sector faced significant pressure from accumulated inventories and negative margins. Market sentiment shifted significantly in mid-March with widespread expectations of falling prices throughout the value chain, particularly for polysilicon.
Anita: Just sentiment shifted significantly in mid March with widespread expectations of falling prices throughout the value chain, particularly for power Silicon I've never resolved downstream manufacturers began to lower utilization rate do you see inventory and delay orders to minimize the impact of falling prices.
Anita: In April further pressure on polysilicon prices emerge as the issue of excess inventory of mono wafer manufacturers worsen and wafer customers further delayed orders and product delivery.
Anita: Therefore, polysilicon prices dropped further by late April two of 47 to 54 Mg per kilogram for tier one producers at the industry's cash breakeven costs.
Anita: At this level, we believe the entire solar value chain, including power silicon is likely to be loss, making general and that a large number of polysilicon producers are currently unprofitable.
Anita: Does she has gone through multiple cycles in the past and based on my previous experience. We believe that the current low prices. The market downturn will eventually result in a healthier market as poor profitability him losses as long as Kasper and will lead to many market players exiting the business with some possible bankruptcies this will bring the inevitable.
Anita Zhu: As a result, downstream manufacturers began to lower utilization, reduce maturity, and delay orders to minimize the impact of falling prices. In April, further pressure on policy and prices emerged as the issue of excess inventory among wafer manufacturers worsened, and wafer customers further delayed orders and product delivery. Therefore, policy book prices dropped further by late April to 47 to 54 RMB per kilogram for Tier 1 producers at the industry's cash break-even cost.
Anita: Apache rationalization itself the overcapacity issue, we're currently experiencing.
Anita: And as demand growth resumes after excess inventories are depleted in the short term and on the backdrop of positive policy, it's pushing renewable installations and the long run the solar PV industry will return to normal profitability and chief better margins. We believe that at the end of the quarter. We had one of the industry's lowest levels of finished goods.
Anita Zhu: At this level, we believe the entire solar value chain, including polysilicon, is likely to be loss-making in general, and that a large number of polysilicon producers are currently on. The solar industry has gone through multiple cycles in the past, and based on our previous experience, we believe that the current low prices and market downturn will eventually result in a healthier market, as poor profitability and losses, as well as cash burn, will lead to many market players This will bring inevitable capacity rationalization and solve the overcapacity issue we're currently experiencing.
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Anita: Well, we're all 23 market step change for renewable power growth with China's New Orleans sell solar PV capacity, reaching a record high of $216 nine gigawatt, representing 148% year over year are girls, we continued to see strong growth in solar PV installations in China.
Anita: In the first quarter of 'twenty, 'twenty, four which reached an aggregate of $45 seven gigawatt, representing a 36%, even though year over year growth rate.
Anita: Solar has become one of the most competitive forms of power generation and continuous cost reductions and solar PD products and associated reduction in solar energy generation costs are expected to create substantial additional demand for solar P D well.
Anita Zhu: And as demand growth resumes after excess inventories are depleted in the short term and on the backdrop of positive policies pushing renewable installations in the long run, the solar PV industry will return to normal profitability and achieve better margins. We believe that at the end of the quarter, we had one of the industry's lowest levels of finished goods inventory with approximately two weeks of production.
Anita: It was 2023 setting the stage for gradually phasing out people type products, we believe that 'twenty 'twenty four will mark the year wet N type products dominate the industry. We are optimistic that we'll capture the long term benefits of the growing global solar PV market and maintain our competitive advantage by enhancing our higher.
Ming Yang: Overall, 2023 marked a step change for renewable power growth, with China's newly installed solar PV capacity reaching a record high of 216.9 gigawatts, representing 148% year-over-year growth. We continue to see strong growth in solar PV installations in China during the first quarter of 2024, which reached an aggregate of 45.7 gigawatts, representing a 36% year-over-year growth rate. Solar has become one of the most competitive forms of power generation, and continuous cost reductions in solar PV products and associated reductions in solar energy generation costs are expected to create substantial additional demand for solar PV.
Anita: Higher efficiency N type technology, and optimizing our cost structure through digital transformation and AI adoption as well.
Anita: One of the world's lowest cost producers with the highest quality and type product a strong balance sheet and no financial debt. We believe we're well very well positioned to weather the current market downcycle and emerge as one of the leaders in the industry to capture the market's future growth.
Now I'll turn the call to our CFO, Mr. Ming Yang who will discuss the company's financial performance for the quarter named please go ahead.
Ming Yang: Hello, everyone, just named Yang CFO of <unk> energy.
Ming Yang: Appreciate you joining our earnings conference call today.
Ming Yang: I'll now go over the company's first quarter.
Ming Yang: The 'twenty 'twenty four financial performance.
Ming Yang: He was worth $415 3 million compared to $476 3 million in the fourth quarter of 2023.
Ming Yang: $709 million in the first quarter of 2023.
Ming Yang: With 2023 setting the stage for gradually phasing out P-type products, we believe that 2024 will mark the year when N-type products dominate the industry. We are optimistic that we'll capture the long-term benefits of the growing global solar PV market and maintain our competitive advantage by enhancing our higher efficiency N-type technology and optimizing our cost structure through digital transformation and AI adoption. As one of the world's lowest-cost producers with the highest-quality end-type product, a strong balance sheet, and no financial debt, we believe we are very well-positioned to weather the current market down cycle and emerge as one of the leaders in the industry to capture the market's future growth. Now I will turn the call to our CFO, Mr. Ming Yang, who will discuss the company's financial performance for the quarter. Ming, please go ahead.
Ming Yang: The decrease in revenue compared to the fourth quarter of 2023 was primarily due to a decrease in average selling prices and lower polysilicon sales volume.
Ming Yang: Gross profit was $72 million compared to 87 million in the fourth quarter of 2023, and 506 million in the first quarter of 2023 gross margin was 17, 4% compared to 18, 3% in the fourth quarter of 2023 and 71, 4% in the first.
Ming Yang: Quarter of 2022.
Ming Yang: The decrease in gross margin compared to the fourth quarter of 2023 was primarily due to lower average selling prices, which was partially mitigated by lower production costs.
Ming Yang: Selling general and administrative expenses were $38 4 million compared to 39 million in the fourth quarter of 2023 of $41 3 million in the first quarter of 2023.
Ming Yang: SG&A expenses during the first quarter included a $19 6 million noncash share based compensation costs related to the company's share incentive plan compared to $19 6 million in the fourth quarter of 2023.
Ming Yang: Hello everyone, this is Ming Yang, CFO of Daqo New Energy. We appreciate you joining our earnings conference call today. I will now go over the company's first quarter 2024 financial performance. Revenues were $415.3 million compared to $476.3 million in the fourth quarter of 2023 and $709 million in the first quarter of 2023. The decrease in revenue compared to the fourth quarter of 2023 was primarily due to a decrease in average selling prices and lower policy look and sales volume.
Ming Yang: R&D expenses were $1 5 million compared to $3 3 million in the fourth quarter call in 'twenty, three and $1 9 million in the first quarter of 2023.
Ming Yang: R&D expenses vary from period to period and reflect the R&D activities that take place during the quarter.
Ming Yang: Our R&D activities currently focus on process and technologies that improve purity, so little poly silicon or even remove contamination to increase our anti polysilicon percentage.
Ming Yang: As with all of the foregoing income from operations were $30 5 million compared to 83.3 million in the fourth quarter of 2023, and $462 8 million in the first quarter of 2023.
Ming Yang: Gross profit was $72 million compared to $87 million in the fourth quarter of 2023 and $506 million in the first quarter of 2023. Gross margin was 17.4% compared to 18.3% in the fourth quarter of 2023 and 71.4% in the first quarter of 2023. The decrease in gross margin compared to the fourth quarter of 2023 was primarily due to lower average selling prices, which was partially mitigated by lower production costs.
Ming Yang: Operating margin was seven 3% compared to 17, 5% in the fourth quarter of 2023, and 65% in the first quarter and 23.
Ming Yang: Foreign exchange loss was 0.3 million compared to a loss of <unk> 8 million in the fourth quarter of 2023, and this is attributed to the volatility and fluctuation.
Ming Yang: The U S dollar to RMB exchange rate during the quarter.
Ming Yang: Net income attributable to talk when you wanted to shareholder was $15 5 million compared to $53 3 million in the fourth quarter of 2023, and $278 8 million in the first quarter of 2023.
Ming Yang: Selling general and administrative expenses were $38.4 million compared to $39 million in the fourth quarter of 2023 and $41.3 million in the first quarter of 2023. SG&A expenses during the first quarter included $19.6 million in non-cash or based compensation costs related to the company's shared incentive plan compared to $19.6 million in the fourth quarter of 2023. R&D expenses were $1.5 million compared to $3.3 million in the fourth quarter of 2023 and $1.9 million in the first quarter of 2023.
Ming Yang: Earnings per basic 80 S was 24 cents compared to 76 cents in the fourth quarter of 2023.
$3.56 in the first quarter 2023.
Ming Yang: Adjusted net income attributable to talk on your energy Corp shareholders, excluding noncash share based compensation cost was 36 million compared to $74 3 million in the fourth quarter of 2023, and 210 million in the first quarter of 2023.
Ming Yang: Adjusted earnings per basic 80 S was 55 cents compared to a dollar and six cents in the fourth quarter of 2023 and $3.96 in the first quarter of 2023.
Okay.
Ming Yang: EBITDA was $76 9 million compared to 128 million in the fourth quarter of 2023, and 490 million in the first quarter of 2023.
Ming Yang: EBITDA margin was 18, 5% compared with 26, 9% in the fourth quarter of 2023 and 69% in the first quarter of 2023.
Ming Yang: R&D expenses vary from period to period and reflect the R&D activities that take place during the quarter. Our R&D activities currently focus on processes and technologies that improve purity for polysilicon and remove contamination to increase our anti-polysilicon percentage.
Ming Yang: Now on the company's financial condition.
Ming Yang: As of March 31st 2024, the company had 269 billion in cash and cash equivalents compared to <unk>.
Ming Yang: As a result of the foregoing, income from operations was $30.5 million compared to $83.3 million in the fourth quarter of 2023 and $463.8 million in the first quarter of 2023. Operating margin was 7.3% compared to 17.5% in the fourth quarter of 2023 and 65% in the first quarter of 2023. The foreign exchange loss was 0.3 million compared to a loss of 0.8 million in the fourth quarter of 2023, and this is attributed to the volatility and fluctuation of the US dollar to RMB exchange rate during the quarter.
Ming Yang: 3.05 billion are supposed to do some sort of December 31st 2023 and.
Ming Yang: $4 1 billion as of March 31st 2023.
And as of March 31st 'twenty 'twenty four.
Ming Yang: It's just people who'll balance was 194 million compared to 116 million December 31st 2023.
Ming Yang: 291 million as of March 31st 2000, Twenty's theory.
Ming Yang: No receivables represent bank notes with maturity within six months.
Ming Yang: For the three months ended March 31st 2024, net cash used in operating activities was $115 9 million compared to net cash provided by operating activities of 800 and southern mill in the same period of 2023.
Ming Yang: Net cash used in operating activities for the quarter.
Ming Yang: There was a result of change in operating assets and liabilities.
Ming Yang: Primarily related to the company's payment of approximately $75 million in tax payable is that you do during the first quarter as well as an increase in note receivable balance of approximately 78 million.
Ming Yang: The net income attributable to Daqo New Energy's shareholders was 15.5 million compared to 53.3 million in the fourth quarter of 2023 and 278.8 million in the first quarter of 2020. Earnings per basic ADS was $0.24 compared to $0.76 in the fourth quarter of 2023 and $3.56 in the first quarter of 2020. Adjusted net income attributable to Daqo New Energy Corp shareholders, excluding non-cash share-based compensation costs, was $36 million compared to $74.3 million in the fourth quarter of 2023 and $310 million in the first quarter of 2023.
Ming Yang: And although items that used cash include payments to suppliers in conjunction with the period related to the Chinese Chinese new year holiday.
Ming Yang: The increase in inventory.
Ming Yang: For the three months ended March 31st 2024, net cash used in investing activities was 190 to 95 million compared to $268 9 million in the same period of 2023.
Ming Yang: Net cash used in investing activities in the first quarter of 2024 was primarily related to the capital expenditures on the company.
Ming Yang: Five a and phase <unk> polysilicon expansion projects in volatile city inner Mongolia.
Ming Yang: Due to the recent.
Ming Yang: Changes in market condition. The company's board of managed to management, you have decided to temporarily postpone the company's non polysilicon manufacturing capacity expansion plans to reserve capital.
Ming Yang: Adjusted earnings per basic ADS was $0.55 compared to $1.06 in the fourth quarter of 2023 and $3.96 in the first quarter of 2023. EBITDA was $76.9 million, compared to $128 million in the fourth quarter of 2023 and $490 million in the first quarter of 2021. EBITDA margin was 18.5% compared to 26.9% in the fourth quarter and 23.69% in the first quarter.
Ming Yang: As such the company's capital expenditure has been reduced to approximately $700 million for the year, which is related to the company's inner Mongolia of polysilicon project and this represents a significant decrease from the previous capital expenditure plan for the year of approximately one one to $1 2 billion.
Ming Yang: And for the three months ended March 31, 2024, net cash used in finance activities was $6 million compared to net cash provided by finance activities of 59 9 million the same period of 2023.
Ming Yang: Net cash used in finance activities in the first quarter of 2024 was probably related to approximately $5 million that was used for the company's share repurchase.
Ming Yang: Now the company's financial condition. As of March 31st, 2024, the company had $2.689 billion in cash and cash equivalents, compared to $3.05 billion as of December 31st, 2023, and $4.1 billion as of March 31st, 2023. And as of March 31st, 2024, the nodes receivable balance was $194 million compared to $116 million as of December 31st, 2023 and $791 million as of March 31st, 2023. No receivables or percent banknotes with maturity within six months.
Speaker Change: And that concludes our prepared remarks, we will now open the call to Q&A from the audience.
Speaker Change: Operator, please begin.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If you were using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Okay.
Speaker Change: Okay.
Speaker Change: The first question.
And today comes from Philip Shen with Roth M. Kim. Please go ahead.
Ming Yang: For the three months ended March 31st, 2024, net cash used in operating activities was $115.9 million compared to net cash provided by operating activities of $807 million in the same period of 2023. Net cash used in operating activities for the quarter was the result of a change in operating assets and liabilities, primarily related to the company's payment of approximately $75 million in tax payables that were due during the first quarter, as well as an increase in no receivable balance of approximately $78 million. And other items that use cash include payments to suppliers in conjunction with the period related to the Chinese New Year holidays, as well as an increase in inventory.
Philip Shen: [noise] Phil Your line is open if you'd like to ask your question.
Philip Shen: [noise] [noise].
We seem to be unable to connect to Phil Shen audio. The next question comes from Alan Lowe with Jefferies. Please go ahead.
Philip Shen: Okay.
Thanks, a lot for taking my question, perhaps management, so I think.
The first question is that after you ceased after he and I always remind us about the buyback. So I wonder if there's any guidance from the management are you got to.
Alan Lowe: Buyback or dividend plans are in this year.
Speaker Change: Okay. So are.
Speaker Change: The board actually had a discussion about a potential doing a sure continue to do the share repurchase program, but I think even in light of the current market condition, where the industry. Overall is actually looking like it's going to be making losses and we're uncertain. How long. This my last so the board does Phil.
Ming Yang: For the three months ended March 31st, 2024, net cash used in investing activities was $190.5 million, compared to $268.9 million in the same period of 2023. Net cash used in investing activities in the first quarter of 2024 was primarily related to capital expenditures on the company's Phase 5A and Phase 5B polysilicon expansion projects in Baotou City, Inner Mongolia. Due to the recent changes in market conditions, the company's board and management team have decided to temporarily postpone the company's non-polysilicon manufacturing capacity expansion plans to reserve capital.
Speaker Change: It's more prudent to conserve capital for now to whether the market downturn and then we look like they would like to.
I see.
Speaker Change:
Speaker Change: How the market would perform and if the market does.
Does improve.
Perhaps later in the year I think the board would definitely consider a program at a later date as appropriate.
Speaker Change: I think just a you.
Speaker Change: No because of the market condition I think the board does feel like we need to conserve capital right I think including though we significantly reduced.
Speaker Change: Our capacity expansion plans.
Speaker Change: And separately I think the companies are so should strategically looking at potential expansions overseas outside of China.
Ming Yang: As such, the company's capital expenditure plan has been reduced to approximately $700 million for the year, which is related to the company's Inner Mongolia Polycycline project. This represents a significant decrease from the previous capital expenditure plan for the year of approximately 1.1 to 1.2 billion. And for the three months ended March 31st, 2024, net cash used in finance activities was $6 million compared to net cash provided by finance activities of $59.9 million in the same period of 2023. Net cash used in finance activities in the first quarter of 2024 was primarily related to approximately $5 million that was used for the company's share repurchase.
Speaker Change: <unk> and arrows in Middle East, where we're actually looking at several locations pretty actively.
Speaker Change: Then also potentially other anywhere else in southeast Asia.
Speaker Change: Well so so that also represents.
Speaker Change: A potential use of funds for the company. So the board is also making some considerations because of that as well.
Speaker Change: Ashish so yeah and another question I have is on the south falling short in terms of the production and actually the company has actually.
Speaker Change: Oh, well have an upside surprise, even production volume, but it's so things are low with empty a protection for them. So well, let you know how much is the infantry right now are in the company and also just in regards to the sales volume in the first quarter was it related to to cut.
Operator: And that concludes our prepared remarks. We will now open the call for Q&A from the audience. Operator, please begin. We will now begin the question.
Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: Right in wafer shipment.
Okay, Yes, I think operationally the company actually was doing very well.
Speaker Change: This quarter.
Speaker Change: If we exclude the impact of the market condition in the second half of March I think you know we produce more than 52000 metric tons right an increase over the previous quarter. So so this is a pretty good improvement, particularly particularly on the quality side, we made very significant improvements.
Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Phil Shen with Ross MKM. Please go ahead. Phil, your line is open if you'd like to ask your question. Unfortunately, we seem to be unable to connect to Phil Shen's audio. The next question comes from Alan Lau with Jefferies. Please go ahead.
Speaker Change: And quality, particularly in inner Mongolia on U S. Gulf facility. So in time as of March is now north of 70%.
Douglas Goldstein: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio shows. He is a licensed financial professional in both the U.S. and Israel.
Speaker Change: Although our mix at the same time, we also saw further reduction in production cost.
Speaker Change: I think just to start you know says.
Unknown Executive: Okay, so the board actually had a discussion about the potential of continuing to do the share repurchase program, but I think in light of the current market condition, where the industry overall is actually looking like it's going to be making losses, and we're uncertain how long this mine will last, the board does feel that it's more prudent to conserve capital for now to weather the market downturn. And then they would like to see, you know, how the market performs.
Speaker Change: And then March the that the industry conditions have declined significantly I think our customers delayed their orders.
Speaker Change: They delayed delivery of.
Of polysilicon for full production a little other utilization of in anticipation of.
Speaker Change:
Speaker Change: Lower polysilicon pricing, but also because of this and that they can wafer.
Speaker Change: Inventory that was occurring at a time, yeah. So that's all actually.
Unknown Executive: And if the market does improve, perhaps later in the year, I think the board would definitely consider a program at a later date as appropriate. I think just, you know, because of the market condition, I think the board does feel that we need to conserve capital. I think, including though, we significantly reduced our capacity expansion. And separately, I think the company is also strategically looking at potential expansions overseas, outside of China, including areas in the Middle East, where we're actually looking at several locations pretty actively, and then also potentially in other areas in Southeast Asia, as well. So that also represents a potential use of funds for the company. So the board is also making some considerations because of that.
This so tricia I should persist in more or less through mid to late April I think now we're shipping normally but at a much lower.
Pricing.
At the end of.
Speaker Change: The quarter, we had approximately a two week slightly less than two weeks of production.
Speaker Change: Our finished goods inventory.
Speaker Change: So we think that's probably one of the lowest within the industry.
Speaker Change: Yeah.
You had two weeks of inventory is actually quite a quite impressive.
Speaker Change: Is that a question I have is on the other operating income so they are the two.
To change as well.
Speaker Change: Relatively significant so well, let you know as it relates.
Speaker Change: Related to the change in the subsidies provided.
Unknown Executive: I see. So, yeah, another question I have is about the sales volume. So in terms of production, and actually, the company has actually We have an upside surprise in production volume, but the sales seem lower than the production volume. So we would like to know how much inventory is right now in the company and also, in regards to the sales volume in the first quarter, was it related to the cut in utilization in waste assessment?
Speaker Change: In terms of power tariffs.
Speaker Change: Uh huh.
Speaker Change: So actually.
Speaker Change: I believe we had.
Speaker Change: The other.
Speaker Change: So it's actually an expense for the quarter rather than the income.
Speaker Change: And then just related to some of the older equipment that we replaced so the older equipment needs to be expense gets a longer being used it amounted to about $1 $6 million. So it's not too significant that this happens.
Unknown Executive: Okay, yes, I think operationally, the company actually was doing very well this quarter. I think we should exclude the impact of the market condition in the second half of March.
Speaker Change: Like me.
Speaker Change: Maybe once a year.
Speaker Change: Year or something like that.
Speaker Change: Okay.
Speaker Change: I see so.
Speaker Change: So in the first quarter, there isn't any subsidies coming in like in Tokyo.
Speaker Change: Yeah. So so we would expect some subsidy potentially in the second quarter and then.
Unknown Executive: I think, you know, we produce more than 62,000 metric tons, an increase over the previous quarter. So this is a pretty good improvement, particularly on the quality side. We made very significant improvements in quality, particularly at the Inner Mongolia facility. So n-type, as of March, is now north of 70 percent of our mix, and at the same time, we also saw a reduction in production costs. I think this is such an innocence.
Speaker Change: More subsidy likely in the fourth quarter well, usually it's in the second half of the year.
Speaker Change: I see okay.
Speaker Change: My last question is regards to the industry like Oh, how do you see the poly price going forward. This year and then Oh, when you would see a turnaround in the industry.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: So.
Speaker Change: The most recent.
Speaker Change: Price decline, we believe actually is.
Unknown Executive: And then March, the industry conditions, inventory that was occurring at the time. Yeah, so actually, this situation actually persisted more or less through mid to late April. I think now we're shipping normally, but at a much lower price at the end of finished goods inventory. So we think that's probably one of the lowest.
Speaker Change: More of a resolved then.
Speaker Change: The inventory adjustment, that's happening right basically customers delaying orders and who and what their expectations are.
Speaker Change: The lower pricing.
Speaker Change: You use future periods right. So some people who don't want to take a wait and see mode.
Speaker Change: Now at the lower price, we're starting to see.
Unknown Executive: Two weeks of inventory is actually quite impressive. So another question I have is on the other operating income. So the QOQ change is relatively significant, so I would like to know if it is related to the change in the subsidies provided in terms of the power tariff?
Speaker Change: Order a returning also at a lower level or pricing level.
Speaker Change: We think this.
Pricing level, where the industry is that right now this is actually.
Speaker Change: A money, losing probably four.
Unknown Executive: Oh, actually, I believe we had So it's actually an expense for the quarter rather than income. And then it's related to some of the older equipment that we replaced. So the equipment needs to be expensed. It's no longer being used. Its amount is about $1.6 million. Not too significant. This happens, you know. Maybe once a year or something like that.
Speaker Change: 70, 80% of the industry.
Speaker Change: So I think almost a majority of the players are losing money right now and this certainly cannot be sustainable.
Speaker Change: Think of this probably stocks person, it's a matter over time, the number of players will likely need to shut down or sell me me, but have you seen.
You know exited the business or are going through a bankruptcy I think we're likely to see that it probably stays at this low level.
Unknown Executive: So in the first quarter, there aren't any subsidies coming in, right? Like in 4Q? Yeah.
Speaker Change: But then that will bring the eventual capacity rationalization right I think that the people are.
Unknown Executive: Yeah, so we would expect some subsidy potentially in the second quarter and then more subsidy likely in the fourth quarter. Well, usually it's in the second half.
Speaker Change: We're expecting.
Speaker Change: And then at the same time, you also have a lot of opportunity on on demand.
Speaker Change: So also we think China's likely it could be very strong this year because of where the panel prices right now.
Unknown Executive: I see. So my last question is in regards to the industry, like, how do you see the poly price going forward this year? And then when do you see a turnaround in the industry?
Speaker Change: And its offering very high return for the civil projects in China, I think globally as well. So so we are optimistic that we could see a very significant.
Unknown Executive: Okay, so the most recent price decline we believe actually is, And more of a result of the inventory adjustment that's happening, right, right, so customers are delaying orders and with the expectation.
Speaker Change: And end market. This year. So so I think it's the balance of these true I think coming timing hard to tell I think we could see some improvements in the second half of this year.
So I think the.
Speaker Change: And another thing and that's something that.
Unknown Executive: At the lower price, we're starting to see orders returning at a lower level, at a lower price level. We think the pricing level where the industry is at right now is actually... Money losing probably for, I would call 70-80% of the industry. So I think almost the majority of the players are losing money right now, and this certainly cannot be sustainable. I think if this price does persist, it's a matter of time that a number of players will likely need to shut down, or some may even... [inaudible] And at the same time, you also have a lot of opportunities on demand.
Speaker Change: Oh actually we have talk about car T. A lot of players are actually losing money. So are you going to delay your.
Speaker Change: Phase five feet or like what is the capex is going to look like in this year, especially that carbon prices.
Speaker Change: So so we're delaying everything else almost everything else, except five beetles cause cause five days already.
Speaker Change: I'm ready to go into production because it's been under construction for a year or over a year.
Speaker Change: I think we're still at least for now as of today, it's still being planned Oh. So originally scheduled.
Unknown Executive: So we think China is likely to be very strong this year because of where the panel price is right now. So it's offering a very high return for the solar projects here in China, and I think globally as well. So we are optimistic that we could see a very significant... Timing is hard to tell. I think we could see some improvements in the second half.
Speaker Change: So to start production in Q2, and this quarter actually initial production and then ramp up in Q3.
Speaker Change: Yeah.
Speaker Change: Gosh it depends on a pass on them.
Speaker Change: Yeah, I just want to odd even faster thanks, a lot for taking my questions.
Speaker Change: Great. Thank you.
Speaker Change: Yeah.
Speaker Change: The next question comes from Leo Ho with <unk> capital markets. Please go ahead.
Unknown Executive: Another thing is, we have talked about a lot of players actually losing money. So are you going to delay your Phase 5B, or what is the tech that is going to look like this year, especially at current prices?
Leo Ho: Oh, Thanks management for the time today. My first question is regarding the F. B all ground, who are sick and we noticed that that simple measure and module makers, including for example, LNG at Jacobs, suggesting that the F. B alcohol team Rachel now they can do about 50% for N type wafer I just wonder if we can.
Unknown Executive: Thank you. So I think 5G, at least for now, as of today, it's still being planned, as originally scheduled, you know, to start production in Q2 this quarter actually, initial production, and then ramp up in Q2.
Speaker Change: Sure any update.
Speaker Change: Yeah, you can say situation most I'll take and you know why are we seeing such hence adapting season adult English. Thank you.
Speaker Change: Yeah.
Speaker Change:
Speaker Change: I think I'll, just be or at least based on feedback from our customers.
Unknown Executive: So thanks a lot. I'll pass on to other investors. Thanks a lot for taking my questions.
Speaker Change: Is that it continues to.
Operator: The next question comes from Leo Ho with Daiwa Capital Markets. Please go ahead.
Speaker Change: Has he you know her level of sulfur contaminants.
Speaker Change: And higher surface metal and the higher hydrogen and higher carbon.
Leo Ho: Thanks, management, for your time today. My first question is regarding FBR granular silicon. We noticed that there are several major module makers, including, for example, Longji and JKS, suggesting that the FBR doping ratio can now do around 50% for n-type wafers. I just wonder if we can share any update on, you know, this FBR usage situation, what's the outtake, and then, you know, why we're seeing such an increase in the doping ratio.
Speaker Change: So it is I think the challenge with <unk>.
Speaker Change: Most of the wafer producer is.
Speaker Change: The hard carbon content actually leaf too.
Speaker Change: Breaking up the waterfall.
Speaker Change: And then also the contamination in those so the hydrogen jumping.
Speaker Change: Jumping issue means that there's less amanda's.
Speaker Change: Uh huh.
Speaker Change: Paul It can be used per per run.
Speaker Change: So it's a we view yourself you are you have a slight reduction in production yield per run on the ingot.
Unknown Executive: I think the challenge with SBR, at least based on feedback from our customers, is that it continues to have, you know, her levels up for contaminants, and the higher surface metal, and the higher hydrogen, and higher carbon. So I think the challenge with SBR is
Speaker Change: So and that's the main reason why customers require a discount and currently primarily use it.
Speaker Change: It's a mix.
Speaker Change: In a previous understanding is that the mix is between 10% to 30%, but I think I'd be produce it probably has a slightly dip.
Speaker Change: Different mix.
Speaker Change: I think you know some.
Unknown Executive: Most of the way for the producer is that the higher carbon content actually leads to the breaking of the waterfall. So, and then also the contamination and also the hydrogen jumping issue means that a smaller amount of Poly can be used per run, so if you use FBR, you have a slight reduction in production yield per run on the ingot. So, and that's the main reason why customers require a discount and currently primarily use it as a mix. From my previous understanding, the mix is between 10 to 30%.
The main player all of these players also our customer I bought I think.
I know they want to diversify their sourcing or maybe they want to lower their costs right right. So there.
Speaker Change: I mean, there are always looking for lower cost.
Speaker Change: To the extent that they can use right. So we're not surprised that they had some kind of.
Speaker Change: The agreement and these agreements are always.
Speaker Change: At least in China, almost always things are kind of framework agreements right. So so the volume and pricing is adjusted.
On a monthly basis.
Speaker Change: Understood. That's actually my next question is regarding the price cap for different type of policy I can say for example, and typos. It's P type and then also for N type high quality, Paul Chicken that we thought he was asking what are those price gaps loci.
Unknown Executive: You know, but I think every producer probably has a slightly different name. I think, you know, some of the main players. These players are also our customers, but I think... I know they want to diversify their sourcing or maybe they want to lower their costs, right? So they're always looking for lower costs, and sources to the extent that they can use them, right? So we're not surprised that they are, at least in China. Almost always, these are kind of framework agreements, right? So the volume and pricing are adjusted.
Speaker Change: Okay right now and also looking forward. Thank you.
Speaker Change:
Speaker Change: I I think consistently the N type poly has had price premiums in the range of.
Speaker Change: Maybe five to 10 RMB.
Speaker Change: Per kilogram.
Speaker Change: I think currently it's somewhere in the seven to a RMB.
Speaker Change: So per kilogram still even at the current pricing.
Speaker Change: Well that's P. R is just only priced at a discount to the P type Holly generally by Bobby FBR has different grades.
Unknown Executive: Understandable. My next question is regarding the price gap for different types of policies, say, for example, N-type versus P-type and then also for N-type high-quality policies that we produce against FBR. What are those price gaps going to look like right now and also looking forward? Thank you.
Right, so, but well within and type of people. She said, there's also different grades and a generally.
Speaker Change: Related to the there's a full factor.
Speaker Change: The surface structure.
Speaker Change: Yeah. So it's not like one single project. So it's usually a range of price.
Speaker Change: And my last question is regarding electricity tariff for our volatile ends at Hudson capacities would there be any like electricity would have changes that we expected for this year old phone issue.
Unknown Executive: I think consistently the n-type poly has had a price premium in the range of A B 5 to 10 RMB per kilogram. I think currently it's somewhere in the 7 to 8 RMB per kilogram still, you know, even at the current price. Well, FBR is generally priced at a discount to the P-type polymer, generally, but probably FBR has different grades. Right, so within n-type and p-type, there's also different grades, you know, generally related to the full facts of the surface structure. Yeah, so it's not like there is one single price; it's usually a range of...
Speaker Change: No we expect any electricity tariff adjustments.
Speaker Change: On the electricity rates.
Speaker Change: Thanks, so much thank you.
Speaker Change: Okay.
Speaker Change: I think we're seeing John we're expecting the rate to be very stable.
Speaker Change: I think the Ray has been fixed a the previous adjust adjustments was mostly related to <unk>.
I think our policy issued by by M. D. R C that kind of forbid.
In a single entity type of energy price structure.
Speaker Change: At the same time it also of course at a time where.
Speaker Change: The coal prices, which was at a higher price so R. R.
Unknown Executive: And my last question is regarding electricity tariffs for our Baotou and Shihezi capacities. Would there be any, like, electricity tariff changes that we expect for this year or for next year?
Speaker Change: A utility company actually was it was losing money on onto the power feels to us on the call. They generate so so after the <unk>.
Speaker Change: The adjustment that's no longer the case and we are well underway. We continue to have the most favorable.
Unknown Executive: Now, are we expecting any electricity tear-up adjustments on electricity rates?
Unknown Executive: Thanks so much. Thank you.
Speaker Change: Utility right.
Unknown Executive: OK, I think for Xinjiang, we're expecting the rate to be very stable. I think the rate has been fixed.
Speaker Change: For for that a local utility for the region.
It's still competitive but.
Unknown Executive: The previous adjustment was mostly related to, I think, a policy issued by NDRC that kind of forbade a single entity type of energy price structure. At the same time, it also coincided with a time when Utility Company actually was losing money on the power sales to us or the power they generated. So after the... [inaudible] I think similarly for Inner Mongolia. Inner Mongolia already had an adjustment. I think around the first half of 2023, I believe, also based on the NDRC rule.
Speaker Change: But we don't expect that to change.
Speaker Change: Are the rates of change I think similarly for and the Mongolian minimum well they already had in our adjustments.
Speaker Change: Pink around in the first half of 2023 I believe also based on the Indy IRC rule.
Speaker Change: So so now the the inner Mongolia.
Speaker Change: Our rate structure is actually a market base.
Speaker Change: Structure, where actually the rates in effect is actually floating based on market supply and demand for the utility market.
Unknown Executive: So now the Inner Mongolia race structure is actually a market base. [inaudible] But because we buy a significant portion of our power that comes from renewables and renewable pricing, the utility price is lower than coal for the Inner Mongolia grid. And also, we have the most preferential pricing for the whole local grid there. So we do think we have a very, very competitive utility price there, and we don't expect that to change.
Speaker Change: But because we buy up a significant portion of our power comes from renewables and renewable pricing.
Speaker Change: The utility is lower than it's been cold for the inner Mongolia grid. So and also we have the most preferential pricing for the whole.
Local grid there. So we do think we have a very very competitive so utility prices here and we don't expect that to change because it's already been adjusted.
Unknown Executive: Thank you so much for the additional color. These are all from my side. Thank you.
Speaker Change: Thank you so much for the additional color.
Speaker Change: Is that all from my side.
Speaker Change: Oh, great. Thank you.
Operator: As a reminder, if you would like to ask a question, please press star then 1 to enter the question queue. The next question comes from Phil Shen with Ross MKM. Please go ahead.
As a reminder, if you would like to ask a question. Please press Star then one to enter the question queue.
Speaker Change: The next question comes from Phil Shen with Roth M. K M. Please go ahead.
Philip Shen: Hi everyone. Thanks for taking my questions. Sorry about the technical difficulties earlier.
Philip Shen: Hi, everyone. Thanks for taking my questions I'm, sorry about the technical difficulties earlier I'd like to explore price just a little bit more.
Unknown Executive: I'd like to explore price just a little bit more. Can you give us a sense of pricing beyond this year as well? Do you think there could be some recovery next year? Prices have declined recently, and some of the experts that we've been consulting with suggest that prices will continue to decline as we go through the year. So, I'm wondering if you can give us a view of 2025.
Philip Shen: Can you give us a sense of pricing beyond this year as well do you think there could be some recovery next year and we've seen.
Philip Shen: Price decline recently and.
Philip Shen: Are some of the experts that we've been consulting with suggest that prices will continue to decline as we go through the year. So I'm wondering if you can give us a view of our 2025.
Philip Shen: Okay.
Unknown Executive: I think pricing is probably at the bottom, or if not at the bottom, near the very bottom; it's already below cash break-even price for a lot of the producers. You know, we think 70% to 80%. We think starting...
Philip Shen: I, we do think pricing is probably.
Philip Shen: At the bottom well, it's not the bottom near the very bottom, it's already below cash breakeven price for a lot of the producers.
Philip Shen: Take 70% to 80% we think starting.
Unknown Executive: In the next two months or so, we will start to see shutdowns. We are already starting to see shutdowns, and we will see more shutdowns going forward. So if this persists through Q3, we think some of the producers will run into cash problems. And then if it goes into next year, I mean, we might see an OCI-like type of shutdown. Right, I think some of the investors might remember... Oh, sorry, I shut down. They kind of gave up.
Philip Shen: In the next two months or so where so at worst we will start to see shut that we're already starting to see shutdowns and we will see more shutdowns.
Philip Shen: Going forward this.
Philip Shen: They persist through Q3, and we think are some of the producers will run into cash problem.
Philip Shen: And then if it goes into next year I mean, we might see in OCI liked.
Philip Shen: Right well have shut down.
Speaker Change: Right I think some investors might remember OCI shut down.
Speaker Change: Or is it kind of gave up.
Unknown Executive: So, I think if the price stays low, we will see this kind of condition. But we don't think the price can stay this low until, say, through next year. Certainly, you will have a much lower production of polymer, then it's probably not sufficient to service the market.
Speaker Change: So I think if price stays low we will we will see this kind of condition.
Speaker Change: I I.
We don't think prices can stay this slow until say through next year suddenly you will have much lower production with poly than he was probably not sufficient to service the market.
Unknown Executive: And demand grows, right? Because some of it is due to current market conditions due to inventory adjustments, right? So I mean, ultimately, downstream customers will need to restart buying again, right? Because they bought probably more than they needed in, say, the first half of the quarter. And then when an expected demand or price increase that does not materialize in the second half of March, that's when they slow down and stop ordering. So it's this market behavior that's creating the volatility that we're seeing.
Speaker Change: And demand growth because I know some of it the current market conditions due to inventory adjustments right. So I mean ultimately.
Speaker Change: In the downstream customers will need to restart buying again right because they they bought.
Speaker Change: Probably more than they need in say in the first half of the quarter.
Speaker Change: Then when.
Speaker Change: And you know their expected demand or price increase did not materialize in second half of March when they leave slowed down and stopped ordering.
Speaker Change: So it's kind of cause the market behavior, that's creating kind of the volatility that we're seeing in the market.
Unknown Executive: Got it. Thanks, Ming.
Got it thanks, Ming and can you talk about the amount of channel inventory.
Unknown Executive: And can you talk about the amount of channel inventory that's in the market now? And then do you expect that to continue to grow in the near term? And then when do you think that peaks?
Ming Yang: That's in the market now and then do you expect that to continue to grow for the near term and then and then when when do you think that peaks.
Unknown Executive: We've heard various amounts of, you can call it, Channel Inventory. We've heard it's somewhere in the range of 150,000 to 180,000 metric tons right now. And we're a very, a significant part of that, and some of our peers, main peers actually have a lot of inventory currently. So we'll see how that works.
Speaker Change: I mean, we've heard various amounts of a you call it.
Ming Yang: Statistics or a number of we've heard it's somewhere in the range of 150 to 280000 metric ton.
Ming Yang: Right now of our channel inventory.
Ming Yang: And we're very.
Okay insignificant part part of that and some of our peers are main periods that should have a lot of inventory currently.
Ming Yang: So we'll see how that would work.
Unknown Executive: Okay, and then you talked about 70 to 80% of the industry being losing money. What's your guess as to what percentage of the industry could be shut down by the end of the year? I mean, do you think it could be? uh... as much as a quarter of the industry could be uh... well what percentage of the businesses in the industry could go out of business and maybe go away or uh... what are your thoughts on that?
Speaker Change: Mhm, Okay, and then you talked about 70 to 80 per cent or losing money.
Speaker Change: What's your guess as to what percentage of the industry could be shut down.
Speaker Change: By the end of the year I mean, do you think it could be.
Speaker Change: As much as a quarter of the industry. It could be you know should like well what percentage of the business.
Speaker Change: Of the industry could go out of business and maybe go away or.
Speaker Change: What are your thoughts on that thanks.
Unknown Executive: This is a very big ballpark; I think about half would shut down. So how do you exit this?
Speaker Change: This is a very.
Speaker Change: Ballpark I think about half half would shut down.
Speaker Change: So how do you exit yeah.
Unknown Executive: Yeah, I mean, yeah, I think capacity that's kind of intertwined is definitely not competitive. Capacity is not competitive in the current market, and then even some capacity in Mongolia is becoming competitive. Okay, last question.
Speaker Change: Yeah, I mean, yeah, I think capacity, that's kind of a it's a tried and it's definitely not competitive capacity would be naive not competitive.
Speaker Change: Current market.
Speaker Change: And then even some capacity in the Mongolia to.
Speaker Change: Comparatively the current price.
Speaker Change: Okay and last one for now pretty sustainably yeah. Okay.
Unknown Executive: Okay. Oh, thank you.
Speaker Change: Thank you what are your thoughts on.
Unknown Executive: Thank you. What are your thoughts on the Chinese government stepping in to influence or regulate, maybe setting price caps or something like that? We were reading and seeing some potential for that for the module industry. Do you think there could be something like that for poly where the government steps in to avoid this overcapacity in the future?
Speaker Change: Chinese government stepping in.
Speaker Change: To influence or regulate its you know maybe setting price caps or something like that we were reading and seeing some potential for that for the module industry. Do you think there could be something like that is probably where the government steps in to avoid this overcapacity in the future.
Unknown Executive: We haven't heard about that at all. Similarly, we haven't seen any government actions related to
Speaker Change: We haven't heard about that at all.
Speaker Change: We haven't seen any government actions.
Speaker Change: Yeah.
Unknown Executive: Okay, thank you very much.
Speaker Change: Okay.
Speaker Change: Thank you very much.
Speaker Change: Okay. Thank you.
Speaker Change: Yeah.
Operator: The next question comes from Alan Han with J.P. Morgan. Please go ahead.
The next question comes from Alan Horn with J P. Morgan. Please go ahead.
Alan Lau: Hi, this is Alan from JD Login. I have a lot of questions on the amount of capacity in the system right now and also about the outlook for the next one to two quarters. I mean, other than you, who else would be adding capacity? That would be my first question.
Alan Horn: Hi, all these homes from JP Morgan.
Alan Horn: Like Oh questions Oh, yeah.
Alan Horn: About capacity in the system right now and also like the owl rock in the mill.
Alan Horn: Wanted to quarters.
Alan Horn: Hum.
Alan Horn: The capacity that would be my first question.
Alan Horn: Okay.
Unknown Executive: Understanding the capacity in the system is around... Maybe 1.8 to 2 million tons per year.
Alan Horn: Understanding of capacity in the system is around.
Alan Horn: Maybe 1.822 million tonnes.
Per year.
Unknown Executive: Got it. And my second question is, what do you expect your cost structure will be with the new prime commencement in the second quarter? Or for the new Prime, what do you expect its cost structure to be?
Alan Horn: Hi.
Alan Horn: Okay.
Alan Horn: Yeah.
Speaker Change: Got it and my second question is like how do you. What do you expect your cost structure will be with Nippon congratulate in second quarter or for the new product what do you expect the deal cost structure.
Unknown Executive: Okay, I think at least up to today, okay, so we are expecting our costs to continue to decline. So I think, preliminarily, because we're wrapping up in Mongolia phase two. Or Q2 is probably similar to, and Q1. And then we think costs will continue to trend down for Q3 and Q4.
Speaker Change: Okay, I think it leaves us with today. Okay. So so we are expecting our cost to continue to decline.
Speaker Change: So I think premier preliminarily, because where we're ramping up in the Mongolia of phase two.
Speaker Change: So cost.
Speaker Change: Or Q2 is probably similar to.
Speaker Change: Slightly less than.
Speaker Change: In Q1.
And then we think costs will continue to trend down for Q3 and Q4.
Unknown Executive: Well, I guess like one driver with the cost down would be the commencement of the new prime in the second quarter that will be fully wrapped up in Q3, right? So do you have a target for the cost structure of the new prime?
Speaker Change: Well I guess like a one driver over the cost down with the comparison.
Speaker Change: In second quarter that will be a fully wrap up in Q3 right. So do you have like a target for the cost structure at the midpoint.
Unknown Executive: Okay, right? So I don't think we've discussed this earlier. So, you know, for the first time, the inter-Mongolia cost is now below our Xinjiang cost, right? I don't know if you remember. So the inter-Mongolia cost design was to be below Xinjiang, but it was higher than Xinjiang. Thank you. As well, so I think that gave us further confidence that once Indomergola Phase 2 starts, it should be able to see a similar or even better trajectory in terms of cost reduction. Right, because now we've done this once already, so we know where all the issues are...
Okay, all right. So so.
Speaker Change: I don't think we've discussed this earlier so.
Speaker Change: For the first time.
Speaker Change: And the Mongolian cost is now below our Xinjiang cost right.
Speaker Change: No. If you remember so they know memorial cost design was to be below Xing Jamba was was higher than in Shanghai, China.
Speaker Change: Q3, Q4 until this quarter. Okay. Also you had the very same thing improvements in quality.
Speaker Change: Well, so sorry, it seems that gave us further confidence that that once and then we'll go into a phase two starts it should be able to see similar or even better trajectory in terms of our cost reduction there.
Speaker Change: Quality improvement right because now we've done this once already so we know where all the issues are.
Unknown Executive: Got it. Thanks, and these are all the questions. Very great. Thank you, Alan.
Speaker Change: Got it thanks, and then automate all my questions.
Great Great. Thank you Allen.
Anita Zhu: This concludes our question-and-answer session. I would like to turn the conference back over to Anita Zhu for any closing remarks.
Speaker Change: Okay.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Anita Schuh for any closing remarks.
Anita Zhu: 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 have an awesome day. Goodbye.
Anita Zhu: Thank you everyone again for participating in today's conference call did you have any further questions. Please don't hesitate to contact us. Thank you and have an awesome day goodbye.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Anita Zhu: Right.
Anita Zhu: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Anita Zhu: Okay.
Anita Zhu: [music].