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Polysilicon hitting an ALL TIME LOW of $12.62/kg on PVInsights this week.

In other words, throughout all of human history polysilicon has never been cheaper than it is now.

Now you guys be very careful with your investment choices.  Never catch a falling knife, if you know wham sayn.

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The cost of poly is roughly half the cost of cells and the cost of cells is roughly half the cost of modules.

So, if module prices drop 1%, cell prices drop 2% and poly prices drop 4%, pure cells and modules producers margins would not shrink, but poly makers margin will shrink.

This week shows cell prices drop more than 5%, while modules about 1.5%.  That is not bad for pure module makers.

Most companies like jks and csiq now are vertical with more modules capacity than cells and poly.  So, it seems like poly makers will suffer the most while modules makers not so much.

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On 6/12/2018 at 5:09 PM, Jetmoney said:

DQ has dropped a lot from its high a month ago.  Granted that the situation has changed, do you see that it is cheap enough now or this is a broken stock and should be avoided?  Are you still holding or you had sold out already and moved on to next company?  Currently, I don't have the stock but may enter if it drops further (to low $30's maybe).

I moved most of my stake to Scatec Solar, I will only consider entering again once prices can break above 45 and sustain those levels.

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45 minutes ago, tupapa said:

I moved most of my stake to Scatec Solar, I will only consider entering again once prices can break above 45 and sustain those levels.

Hard for me to see the stock returning above 45.  At the current high-end of poly prices DQ's EPS is down by 2/3, while the stock is down "only" by 1/3.  Means there's still pressure downwards on the stock based on fundamentals.  And poly is still still dropping, we haven't hit a bottom yet...

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4 hours ago, Klothilde said:

Polysilicon hitting an ALL TIME LOW of $12.62/kg on PVInsights this week.

In other words, throughout all of human history polysilicon has never been cheaper than it is now.

Now you guys be very careful with your investment choices.  Never catch a falling knife, if you know wham sayn.

Historically have these pvinsights published poly prices corresponded to what DQ was able to sell for ? Or did DQ fetch some premium?

DQ still hovering, so if this really is going to cause losses for them, especially in light of recent plans to expand production, now might be a good time for a small speculative purchase of puts.

Thanks -Matt

Edited by sunnypease

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7 minutes ago, sunnypease said:

Historically have these pvinsights published poly prices corresponded to what DQ was able to sell for ? Or did DQ fetch some premium?

DQ still hovering, so if this really is going to cause losses for them, especially in light of recent plans to expand production, now might be a good time for a small speculative purchase of puts.

Thanks -Matt

https://www.pv-magazine.com/2017/07/28/taiwan-starts-investigation-on-pvinsights-and-energytrend-for-lowering-prices/

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Rumor has it the high end of pvinsights correlates quite well with DQ's ASP. Some people here have looked into it. But also have a look at energytrend, sunsirs, and pvinfolink to beef up your poly price picture. Me myself and I we are all surprised how high the stock is still trading given the poly price action.

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4 hours ago, sunnypease said:

Historically have these pvinsights published poly prices corresponded to what DQ was able to sell for ? Or did DQ fetch some premium?

DQ still hovering, so if this really is going to cause losses for them, especially in light of recent plans to expand production, now might be a good time for a small speculative purchase of puts.

Thanks -Matt

The last couple of quarters Daqo reported an average ASP slightly below high end quarterly averages. This is probably for 2 reasons,

 

The first is that contracts lead price declines. That is to say you sign a contract at price X and it falls to price Y over time. Your next contract is lower at Y but the price falls to Z. Thus in a declining ASP trend, typically the average ASP will tend towards the higher range. 

 

The second is that DQ is selling a higher purer grade used in Mono like the Longi contracts. What was 10-20% is being ramped to 60%. That poly gets a price premium. The downside of that is the deposition to make the higher grade is a slower and a more energy intensive process. That may explain in part some of their higher costs compared to a year  ago.

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15 hours ago, Mark said:

This editorial sheds some further light on pricing moving forward at all points on the chain.  https://www.pv-tech.org/editors-blog/bizarre-demand-forecasting-for-2018-overshadowing-real-impact-of-chinas-con

Wow, he had a lot to say (or many words to say it) and not too manufacturing equipment focused as he sometimes is. He even through in the old mono race to catch up with multi. Yes, multi wafer capacity might have problem (CSIQ bet I think) when LONGi offers cheap high-quality mono with its crazy capacity in the 10's of GW. But his main point  is downstream (panel buyers) can benefit (duh!). Midstream will have upstream absorb their lower prices. Upstream will have no winners. Or maybe he forgot that the upstream mono betters might have a painful acceleration of their market-share gain.

Remember, in 2011 FSLR, CSIQ and JKS all went into the downstream. They were not stupid. And they came out as winners in the whole stock market in 2013, but it did not prevent them from trading in the $11's (FSLR) and $2's (JKS) and $1's (CSIQ). Also remember that the industry sh*t started in 2011 but it took the until late 2012 for the stocks to hit their bottoms after more than 90% falls. I know that seems completely unreal now (it did even more so then), but in 2010 they were all on top of the world and then in 2012 at the bottom. It's not that relevant to me if it was logical, the forces behind it etc., only how I managed my wealth under the scenario, which was in a not risk prudent way, to say the least.

Edited by explo
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5 hours ago, explo said:

Wow, he had a lot to say (or many words to say it) and not too manufacturing equipment focused as he sometimes is. He even through in the old mono race to catch up with multi. .

That was a good read. It confirms some views of mine that cash cost will be the selling price and that the cash cost  through the manufacturing chain using best of bread costs appears to be around $0.20 bottom end for multi and in the $0.24-$0.26 range for PERC.

 

What was not discussed was that back in the the 2012 downturn, demand only fell for a quarter then the demand for modules started to expanded. The  reason for the demand pull that was not covered in much detail. He did hint a bit in it being China market growth to 50% of the market. Because of that change this recovery of the market may be a longer and slower recovery time than in the past cycles.

 

If you look at his graph of the demand growth over the years by market there is some concerns. My main concern is the MW growth being forecast outside of China in the future years vs the past growth rates.

 

Between 2012 and 2017 demand grew outside of China a total of  20GW in 5 years(appx  26.4/29.4/30/36/43/46). The growth of solar outside of China last year was about 3GW. The prior years highest was around 6-7GW and some were flat year over year.

 

The 2018 forecast has a sudden global demand jump from the 3GW growth in 2017 over 2016 to 12GW in 2018 and 23GW in 2019 and 11GW in 2020. Those ROW estimates to me look to have some uncertainty baked in.

 

The numbers from the charts look to have had 60GW baked in for China demand in those years as well. If China is putting the breaks on then the CN demand could be as he noted 10-30GW lower than the future charts suggested. 

 

These growth risks of the market with the expansion plans and capacity buildouts would seem to imply a recovery period from over capacity that may take several years for the manufacturing and costs to align. Unlike the generous CN FIT that created a price floor on modules and heavy demand,  there is no clear single market or policy driver to suck up the inventory or support higher flooring prices. 

 

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6 hours ago, Klothilde said:

Fresh PVInfolink prices.  Mono-grade polysilicon dropping to 100 RMB/kg or $13.5/kg. At that level DQ's quarterly EPS would be roughly $0.75.

Just saying...

http://guangfu.bjx.com.cn/news/20180614/905916.shtml

Apparently *some* cyclical stocks tend to ride out these swings somewhat. 

For example, much loved CAT never really fell when it's EPS crashed down. The PE expands in these earnings valleys?  Now that I write this, I think that explo will either have a heart attack or not be able to stop his laughter.

Edited by sunnypease

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3 hours ago, sunnypease said:

Apparently *some* cyclical stocks tend to ride out these swings somewhat. 

For example, much loved CAT never really fell when it's EPS crashed down. The PE expands in these earnings valleys?  Now that I write this, I think that explo will either have a heart attack or not be able to stop his laughter.

Lol, that’s the type of stocks i’ve learned to appreciate now.

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Daqo New Energy price target lowered to $40 from $48 at Roth Capital
Roth Capital analyst Philip Shen lowered his price target to $40 from $48 as he expects polysilicon prices to trade sideways to down ahead until the outlook for poly pricing improves. The analyst reiterates a Neutral rating on the shares.

https://thefly.com/landingPageNews.php?id=2745254

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48 minutes ago, Klothilde said:

Big poly drop in China again this week, as expected.  Do we have everybody out of DQ by now?

http://pvinsights.com/

That is good news for module makers. Look at how much faster the upstream prices are falling vs the module prices. The PERC mono prices look healthy which is good news for JKS.

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3 hours ago, Klothilde said:

Big poly drop in China again this week, as expected.  Do we have everybody out of DQ by now?

http://pvinsights.com/

I love how you think about the welfare of others Klothilde and others here on SPVI.  This is such an incredibly rare trait among investors I've found.

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7 hours ago, Klothilde said:

Big poly drop in China again this week, as expected.  Do we have everybody out of DQ by now?

http://pvinsights.com/

Not out of it, but I'm resisting the temptation to buy more until the trend becomes clear.

There's still the question of how much they can reduce costs to mitigate those ASP decreases.  They've advertised in the neighborhood of 30%, but the question is, how soon can that be implemented?

If it becomes clear they can maintain quarterly earnings on the order of $1/share (instead of losing money) during this period of readjustment, they could pop to the upside sharply and quickly.  If earnings do go negative, they'll implode further.

Place your bets....

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51 minutes ago, solarpete said:

Not out of it, but I'm resisting the temptation to buy more until the trend becomes clear.

There's still the question of how much they can reduce costs to mitigate those ASP decreases.  They've advertised in the neighborhood of 30%, but the question is, how soon can that be implemented?

If it becomes clear they can maintain quarterly earnings on the order of $1/share (instead of losing money) during this period of readjustment, they could pop to the upside sharply and quickly.  If earnings do go negative, they'll implode further.

Place your bets....

Beware of asset impairment write down risk. They’ve been aggressive on depreciation time. Sometimes it is good for future EPS to take the write down opportunity during market weakness though.

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1 hour ago, explo said:

Beware of asset impairment write down risk. They’ve been aggressive on depreciation time. Sometimes it is good for future EPS to take the write down opportunity during market weakness though.

That's true, but it's impossible to predict if that's what management will do.

I continue to hold my position for the simple fact that in the past (well, the recent past, anyway), they've been the only solar who demonstrated the capability to consistently make significant money, even in challenging markets.  In other words, they demonstrated genuine prosperity, not the "profitless prosperity" of shipping GW worth of components and barely breaking even.  Add to that their announced 30% cost reductions, and I don't think their earnings will evaporate.  Reduce, yes, but not disappear.  They know their business, and they will be able to adapt their company strategy accordingly.

Famous last words....

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15 hours ago, solarpete said:

If it becomes clear they can maintain quarterly earnings on the order of $1/share (instead of losing money) during this period of readjustment, they could pop to the upside sharply and quickly.  If earnings do go negative, they'll implode further.

Place your bets....

Let's see...  With poly currently at $11.9 (PVInsight avg.) their premium ASP should be around $12.6.  At that price level their quarterly earnings should be around $0.4/ADS.

Factor in a further downward momentum in poly prices in the short- and mid-term and you have them posting losses in no time.  Better get out before those crazy EPS estimates get adjusted... (jmho)

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2 hours ago, Klothilde said:

Let's see...  With poly currently at $11.9 (PVInsight avg.) their premium ASP should be around $12.6.  At that price level their quarterly earnings should be around $0.4/ADS.

Factor in a further downward momentum in poly prices in the short- and mid-term and you have them posting losses in no time.  Better get out before those crazy EPS estimates get adjusted... (jmho)

I will be curious on their phase 3B poly plant progress  ramping occurs and price reductions. The phase should be in production by the end of 2019 and ramping. That production ramp and cost reduction plan is what they expect to aid in an ultra low ASP environment for reasonable profitability.

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Profitability?  With Tongwei and GCL firing up 90kt of new low-cost capacity by year end?

June 2018: 20kt (GCL)
September 2018: 25kt (Tongwei)
December 2018: 20kt (GCL) + 25kt (Tongwei)

http://www.asianmetal.com/news/data/1425591/Tongwei Group's polysilicon capacity to rank top three globally

https://www.pv-tech.org/news/gcl-poly-wants-to-sell-polysilicon-subsidiary-stake-for-us2-billion

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5 hours ago, Klothilde said:

Let's see...  With poly currently at $11.9 (PVInsight avg.) their premium ASP should be around $12.6.  At that price level their quarterly earnings should be around $0.4/ADS.

Factor in a further downward momentum in poly prices in the short- and mid-term and you have them posting losses in no time.  Better get out before those crazy EPS estimates get adjusted... (jmho)

How do you arrive at your earnings figure?  Are you including the reduction in costs they're anticipating?

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2 hours ago, SCSolar said:

I will be curious on their phase 3B poly plant progress  ramping occurs and price reductions. The phase should be in production by the end of 2019 and ramping. That production ramp and cost reduction plan is what they expect to aid in an ultra low ASP environment for reasonable profitability.

Exactly.

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Can someone remind me whether non-Chinese polysilicon can be used for exported panels or not? Since most panels will be exported now that domestic installs are curbed and there is a lot of premium polysilicon capacity outside China this is important since it will affect the price of premium Chinese polysilicon a lot..

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18 hours ago, solarpete said:

How do you arrive at your earnings figure?  Are you including the reduction in costs they're anticipating?

I did a quick & dirty adjustment of Q1 2018 results to a theoretical ASP of $12.6/kg.  They had $103.3M in revenue based on an ASP of $17.68/kg, thus the revenue would scale down to $103.3M * (12.6/17.68) = $73.6M, i.e. a drop of $29.7M.  Net income (non-GAAP) drops from $32.9M to $3.2M ($0.3/ADS).  You can refine this calc taking into account wafer biz, taxes, and one-timers, but it won't change the picture.

Are you aware of the timeline associated with the planned cost reductions?  They say they will lower costs from currently $9.2/kg to $7.5/kg (18% reduction) by the time phase 4A ramps up in Q1 2020, i.e. 7 quarters from now.  The notion that they can compensate the current ASP crash by reducing costs in the short term is thus not realistic.

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2 hours ago, Klothilde said:

I did a quick & dirty adjustment of Q1 2018 results to a theoretical ASP of $12.6/kg.  They had $103.3M in revenue based on an ASP of $17.68/kg, thus the revenue would scale down to $103.3M * (12.6/17.68) = $73.6M, i.e. a drop of $29.7M.  Net income (non-GAAP) drops from $32.9M to $3.2M ($0.3/ADS).  You can refine this calc taking into account wafer biz, taxes, and one-timers, but it won't change the picture.

Are you aware of the timeline associated with the planned cost reductions?  They say they will lower costs from currently $9.2/kg to $7.5/kg (18% reduction) by the time phase 4A ramps up in Q1 2020, i.e. 7 quarters from now.  The notion that they can compensate the current ASP crash by reducing costs in the short term is thus not realistic.

Phase 3B is to be mechanically complete by the end of 2018 with ramping to full production complete by the end of Q2 of 2019. That mechanical complete is 6 months from now to start the benefits. It is 1 year from today to see the full ramping and cost savings. That is if they meet the schedule. In Phase 3A they were a couple months ahead of schedule. Any negative impacts that you are suggesting therefore is likely only a short term blip of a quarter or 2 before 3B kicks in altering the fundamentals that you are projecting as ongoing

 

https://www.prnewswire.com/news-releases/daqo-new-energy-announces-phase-3b-expansion-plan-for-its-polysilicon-facilities-in-xinjiang-300539585.html

 

I fully expect them to show continued cost improvements back to  the Q1 2017 cost levels of $8.50 range and not the $9.20 range of the past 2 quarters. With that lets say they get to $8.75 in Q3 costs not quite fully to the Q117 costs but just over half way there. With a high end average ASP of $12.50 they have a $3.75 gross per KG. That should gross $20M in Q3. Their Opex and interest is at $9M a quarter. Their shares outstanding after the secondary is 12.8M. They would be making double your estimate of $0.40. That is before any production ramps from Phase 3B or the cost savings expected to be recognized in early 2019.

I might expect Q1 2019 to be the low point in earnings as the depreciation costs from under utilization due to ramping of the phase 3B temporarily spikes the cost. Once Phase 3B is fully ramped by the end of Q2 2019, they may be producing up to 9,000MT(20% over nameplate) a quarter at a cost of $7.50.  At an ASP of $11, they make $3.5/KG or $31M gross. If Opex doubles with the added capacity then Opex and Interest runs $14M. The Company would be making $17M before tax and $15M after Taxes. That is 3 times your $0.40 price suggestion. If they get a price premium and the ASP is at $12.50, then they would be pushing $2 a share per quarter. 

As for GCL, they consume 90% of their own production and do not sell to the public in volumes like Daqo. They sold only 7KMT in 2017 of the over 60KMT they produced. The rest is consumed for internal use of their 30GW+ of wafer manufacturing.

 

http://gcl-poly.todayir.com/attachment/2018041618320200033111033_en.pdf

 

Daqo does have cost advantages of greater than 10% than other poly manufacturers .  Because of that, DQ will have less impact on earnings than others from the lower ASP. I won't sugar coat anything. If they are making only $1 a share in earnings per quarter, their stock is not worth more than $24-$32. 

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