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Good discussion all around.

I'm gratified to hear they stopped selling during that irrational period in June.  Good to know they have the financial strength to weather weak periods and follow that old adage, "when you find yourself in a hole, the first thing you need to do is STOP DIGGING."

DQ seems to be one of the better managed solars.  They have consistently made decisions that allowed them to, if not prosper, then at least do better than merely survive in very challenging situations.

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On 8/8/2018 at 2:15 AM, Klothilde said:

I'm raising my Q3 estimate slightly after fine-tuning.  I factor in lower cost (RMB depreciation), some losses on wafers, and flat OPEX as guided:

Poly volume 6000t, ASP $12-$12.5/kg, cost $8.6/kg
Wafer volume 7.5M, ASP $0.31/u, cost $0.48/u
Gross poly: $20.4 - $23.4M
Gross wafer: -$1.2M
Total gross: $19.2 - $22.2M
OPEX & NI: $11.0M
E p ADS: $0.51 - $0.70

For Q4 and Q1 I see a risk of ASPs deteriorating due to companies restarting poly plants currently under maintenance as well as Tongwei and GCL ramping up their low-cost poly plants.  

Did you notice PVInsights has the high end poly price increasing 3.39% to $13.30. That bodes well for DQ going forward and confirms the suggestion they made in the con call of Poly rising again.

http://pvinsights.com/ from August 8.

PV Grade PolySilicon (9N/9N+)    13.30    10.00    11.280    Positive Change Sign0.37    Positive Change Sign 3.39%

 

 

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I think it's too early to make strong predictions on prices.

As already mentioned I see the risk of a big supply boost that may put pressure on prices over the next months.

Poly supply in China is currently restricted to the tune of 45% by 11 companies that are shut down for maintenance (131.5kt out of 294kt).  As long as their cash cost is below current market prices these companies will start producing again in a matter of weeks 

Add to that the 90kt of new capa of Tongwei and GCL and you have 131+90=221kt of potential capacity that will come online over the next several months vs. the 163kt of capacity currently online.

It will be fun to see how things unfold.

http://guangfu.bjx.com.cn/news/20180810/919948.shtml

https://www.digitimes.com/news/a20180508PD217.html

 

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4 hours ago, Klothilde said:

Add to that the 90kt of new capa of Tongwei and GCL and you have 131+90=221kt of potential capacity that will come online over the next several months vs. the 163kt of capacity currently online.

 

Lets be accurate. GCL is adding 40KMT in 2018 and relocating/upgrading 20KMT of current capacity. The existing capacity was 65-70KMT. That places their total capacity in the range of 115KMT. 

http://taiyangnews.info/business/gcl-goes-big-time-mono-2/

 

Current loaded capacity runs at over $10/KG.  With $6 production costs for new capacity, at best this places their production costs at around $8/Kg blended. I believe they may have indicated around $9/KG when completed. I could be wrong.

 

Tongwei is adding 50KMT to their existing 70KMT facility.

https://www.pv-magazine.com/2018/06/26/ambitious-pv-expansion-plans-for-chinas-tongwei-longi-and-sunport-still-on-track/

Presuming similar costs to GCL their production costs look to be at best $9/KG blended.

 

This total capacity  of the 2  at 235KMT is looking at around $8.50/KG blended. This capacity will supply around 50-60GW of wafers. In 2019 the CN demand will be in the range of 100GW+ of production. 

Since Tongwei and GCL need profits of $3 or more per KG, this would suggest an ASP of $11-$12/KG at a minimum or basically others cash costs.

 

DQ poly capacity will be at 32-35KMT with a blended  cost of  $7.50. That is  appx $1 below their estimated competitors. I think they will do just fine at $4-$4.50 in gross per Kg. That is a minimum of $120M gross for a company running at <$40M per year in interest and Opex today.

 

By the way, DQ capacity will only supply around 8-9GW. Add that to the other 2 companies and there is still  room for another 150KMT of low cost production (blended $9 or less)  to supply 2019 Chinese demand needs. 

 

It is interesting  that those blended number for companies are suggesting $9 or less production costs. That is exactly the range of cost that DQ suggested will be left. 

 

Do you see another 100KMT of  low cost capacity coming on line from others that would blend down to $9 or less?

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On 8/10/2018 at 12:40 PM, SCSolar said:

Lets be accurate. GCL is adding 40KMT in 2018 and relocating/upgrading 20KMT of current capacity. The existing capacity was 65-70KMT. That places their total capacity in the range of 115KMT. 

http://taiyangnews.info/business/gcl-goes-big-time-mono-2/

 

Current loaded capacity runs at over $10/KG.  With $6 production costs for new capacity, at best this places their production costs at around $8/Kg blended. I believe they may have indicated around $9/KG when completed. I could be wrong.

 

Tongwei is adding 50KMT to their existing 70KMT facility.

https://www.pv-magazine.com/2018/06/26/ambitious-pv-expansion-plans-for-chinas-tongwei-longi-and-sunport-still-on-track/

Presuming similar costs to GCL their production costs look to be at best $9/KG blended.

 

This total capacity  of the 2  at 235KMT is looking at around $8.50/KG blended. This capacity will supply around 50-60GW of wafers. In 2019 the CN demand will be in the range of 100GW+ of production. 

 

I think PV-magazine misrepresented Tongwei's expansion schedule.  My understanding is that they are currently at 20kt and expanding to 70kt by the end of this year.  The 120kt stage is still further in the future.
https://www.pv-tech.org/news/tongwei-signs-major-55000mt-polysilicon-supply-deal-with-longi

In terms of Tongwei costs this article (apparently based on a Tongwei stock exchange filing) has them going from 58800 yuan/ton to 40000 yuan/ton with the new capacities (i.e. $8.6/kg to $5.9/kg).  I suspect the 40000 refers to the new capacities and not the average cost:
http://guangfu.bjx.com.cn/news/20180801/917512.shtml

On 8/10/2018 at 12:40 PM, SCSolar said:

Since Tongwei and GCL need profits of $3 or more per KG, this would suggest an ASP of $11-$12/KG at a minimum or basically others cash costs.

They would need $3 per kg to make investors happy, however that's not how prices are set in a commodity market.

Prices are set by the cash cost of the marginal producer on the cost curve.

The DQ guy said that by end 2019 he expects 300kt of capacity below $9/kg production cost.  Let's say that capacity is enough for 75GW.  If total demand is coincidentally 75GW then the polysilicon price will match the cash cost of the most expensive producer.  That would be $9 - $1.5 (depreciation) = $7.5/kg at the most.

If demand is in the order of 100GW then the price will go beyond $7.5/kg.  How much depends on the slope of the curve beyond the 75GW point.

 

On 8/10/2018 at 12:40 PM, SCSolar said:

Do you see another 100KMT of  low cost capacity coming on line from others that would blend down to $9 or less?

The other company cited every so often that is currently expanding big time is east hope.  PV-Mag has them expanding 30kt this year and 80kt afterwards.  However their plans and status is quite intransparent.
https://www.pv-magazine.com/2018/04/28/the-weekend-read-greener-horizons-for-china/

Also TBEA Xinte has 30kt of capacity that is already low cost.

Also wasn't there a Chinese article recently reviewing the poly industry in detail, i.e. looking at energy consumption, etc.?  Most probably you can derive a cost picture from that as well since cash costs are essentially silicon metal and electricity. 

 

 

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On 8/11/2018 at 8:47 AM, Klothilde said:

I think PV-magazine misrepresented Tongwei's expansion schedule.  My understanding is that they are currently at 20kt and expanding to 70kt by the end of this year.  The 120kt stage is still further in the future.
https://www.pv-tech.org/news/tongwei-signs-major-55000mt-polysilicon-supply-deal-with-longi

In terms of Tongwei costs this article (apparently based on a Tongwei stock exchange filing) has them going from 58800 yuan/ton to 40000 yuan/ton with the new capacities (i.e. $8.6/kg to $5.9/kg).  I suspect the 40000 refers to the new capacities and not the average cost:
http://guangfu.bjx.com.cn/news/20180801/917512.shtml

 

Thanks for the data. After further reading on Tongwei the 50KMT is coming online 1/2 in September and half by the end of the year.  That $5.9 is most likely when they have all 120KMT on line. In order for DQ to reach $7.50/KG they must be producing around $5 to $5.50 in the new facility.

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18 hours ago, Klothilde said:

Terrific piece on the poly market, including a very thorough discussion on CN supply. Bottom line:  Unless demand increases prices are heading down.  Think bungee.
http://m.solarzoom.com/index.php/article/113733

Prices all across the solar chain are heading down all the time.  That's been true for decades.  Tell us something we don't know.  (I can't access the article from this computer, so I don't know if it has any worthwhile specifics in it.  But the observation that prices will decrease in the future is not exactly an earth-shattering revelation.)

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1 hour ago, Klothilde said:

I'm in the gym but check out the DQ transcripts. They think 12USD is the bottom of the industry cycle and that from there on prices increase.

PV insights has poly holding steady at $13.30 high end ASP for the past month. Mid range price is holding stable and the low end price dropped a bit. This would suggest that companies with cash costs of $12/KG is shutdown or break even. Companies with cash costs around $9-$10 are positive cash flow.

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1 hour ago, Klothilde said:

I'm in the gym but check out the DQ transcripts. They think 12USD is the bottom of the industry cycle and that from there on prices increase.

OK.  Does this article disagree?  (As I said, I can't access it from here.)  If so, what are the arguments from the two sides?  Which one do you think is more believable, and why?

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18 hours ago, solarpete said:

OK.  Does this article disagree?  (As I said, I can't access it from here.)  If so, what are the arguments from the two sides?  Which one do you think is more believable, and why?

I could write a book on this but don't have the time.  You should try and read the article from another computer if you are so interested.

In a nutshell:  DQ has a more favorable view of the poly supply & demand balance over the next quarters than this article and many others.  DQ thinks the global PV market will recover quickly from the China cliff and resume its strong growth trajectory already in 2019 with subsidy-free installations as a main driver.  They think that low-cost poly supply will be very limited against this strong demand, thereby prompting a significant price increase relative to current prices.  They think that new capacities being built by competitors will in some case be smaller than announced and also come online so slowly that they won't affect the supply & demand balance much.

This article doesn't go into much detail on demand but states that the supply over the next months will be significant and may pressure prices unless a parallel increase in demand occurs:

"...According to the expansion plans of various enterprises, the release of new capacity of Xinjiang GCL, Tongwei, Xinjiang Daquan, Dongfang Hope, and Asia Silicon is concentrated in October-November, which will put some pressure on domestic polysilicon supply. Therefore, it is expected that the fourth quarter If there is no domestic front-runner or the EU to abandon the "double-reverse" taxation and other favorable domestic and foreign terminal demand, the polysilicon market will not rebound sharply, and may even enter a new round of decline..."

I side with the article and think that supply will expand much faster than demand over the next quarters and put additional pressure on poly prices.  I think DQs market growth projections based on subsidy-free installations are essentially fairy-tales and won't materialize.  We already have countless regions in the world that have been in grid parity for years and where PV installations haven't taken off (e.g. Italy).  It's not as simple as bringing the levelized cost of PV below the grid tariff.  Financing and Dispatchability need to be put in place as well.

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On 8/7/2018 at 8:25 PM, SCSolar said:

OK read the con call. It is reasonably sound. They are selling today at around $12.24 for Mono. They expect the poly to rise by year end to  $12.75 for mono. 

 

This places gross based on $9/kg production cost at $3.24-$3.75/Kg.

 

For Q3 - Use an average of $3- $3.50 gross. 6000MT is $18M to  $21M gross. Less $9M for Opex and interest you have $9-$12. Afer tax you have $0.61 to $0.82 in EPS before 1 timers such as shuttering the wafer or writing off the equipment which is hinted at.

 

 

OK DQ confirms the discontinuation of the wafering business and a $21M write down. That makes it look like a loss coming in Q3 of up to $1 a share.

 

https://finance.yahoo.com/news/daqo-energy-discontinue-wafer-manufacturing-090000533.html

 

CHONGQING, China, Sept. 7, 2018 /PRNewswire/ -- Daqo New Energy Corp. (DQ) ("Daqo New Energy", the "Company" or "we"), a leading manufacturer of high-purity polysilicon for the global solar PV industry, today announced that it plans to discontinue its solar wafer manufacturing operations in September 2018 so that the Company can focus on its core polysilicon manufacturing business. 

The Company expects to incur approximately US$21.6 million in fixed-asset impairment and restructuring charges during the third quarter of 2018, including approximately US$1.6 million in employee severance payments and approximately US$20.0 million in impairment of long-lived assets.

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4 hours ago, Klothilde said:

And down it goes.  Apparently this wasn't fully baked in...

I see it as only a positive for DQ long term. They will be a pure play poly supplier with better margins. They never were very profitable for wafers  and never ramped capacity. It is shown by the fact that the wafering is only writing off appx $20M of what is 500MW of capaccity they have had for several years. 

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20 minutes ago, Jetmoney said:

DQ looks tempting at this price $24.2 from $70 about 4 months ago.  I might take a dip below $24.  Any comment against it?

Sure it looks tempting. I bet it looked tempting at 40 also.  But you never know how far it will drop and is better not to try to catch a falling knife. Wait to see it stabilize first. You will be better off, even if you miss the first 10% from the bottom.

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9 minutes ago, singular said:

Sure it looks tempting. I bet it looked tempting at 40 also.  But you never know how far it will drop and is better not to try to catch a falling knife. Wait to see it stabilize first. You will be better off, even if you miss the first 10% from the bottom.

Thank you.  I have been following and waiting since $40, $30 until now.  It looks oversold now.  It is trading below book now and future earning is not bad.

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2 hours ago, Jetmoney said:

DQ looks tempting at this price $24.2 from $70 about 4 months ago.  I might take a dip below $24.  Any comment against it?

I find the Poly market segment and DQ going through what looks like a 2 to 3 year re-adjustment. This is something this specific segment has not done as it has been relatively young compared to the wafer / cell / module segments. There is cloudiness in the Poly segment of the industry as it looks to re-allocate manufacturing capacity and costs.

 

DQ itself has recently announced writedowns and an exiting of wafer manufacturing. They are taking $20M on 500MW. I am not certain that covers the whole costs.

 

As for the segment, there is a ton of new cpacity coming online that is all under $6/Kg based on analysis. This capacity is coming online now and forever on.  The poly segment has indicated that the $12/KG  capacity is going to be shut down near term due to not being competitive.

The next question is when there is a bunch of sub $6/Kg poly production what will the ASP be like? I might speculate it would be $7-8 +/-. That would then put the capacity   that has costs in  in the $7-$9/KG at risk of write downs or shutdowns over the next few years.  DQ will have over 30+KMT of that capacities production targets online by the end of the year. This would lead me to believe that this current capacity  may be written down  at some point in the next 3 years.

 

This ASP adjustments and the potential of additional adjustments in the next few years creates a cloud in the Poly industry. That cloudiness has happened in every other segment of the Solar industry several times.

To quote Mark Cuban, for that reason I am out.

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20 hours ago, Jetmoney said:

...future earning is not bad...

What earnings if I may ask?  Q3 will obviously be a loss and Q4 will already feel the heat of the new Tongwei and GCL capacities being dumped on the market.  From there on there's a long and painful period of industry re-adjustment to quote SC solar.  Hope everybody here managed to get out in time.

 

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Hardly any discussion on Daqo here, which is sad.

Here's another good article on the industry re-adjustment (me likes the term) that is going on.  By year-end 60% of China's production capacity will come from the low-cost locations Xinjiang and Inner Mongolia, which is a humongous structural shift in the industry.  The article says this is good news for downstream manufacturers since poly will only get cheaper:
http://guangfu.bjx.com.cn/news/20181010/932944.shtml

To me it looks like Daqo was myopic or deceitful when they suggested a scarcity of low-cost poly going forward.  They also said poly was going to increase in price until year-end and it looks like the opposite is true, poly keeps dropping week by week (check out the carnage this week).

Could we now please have a bullish voice on DQ to balance the picture?

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12 minutes ago, Klothilde said:

Hardly any discussion on Daqo here, which is sad.

Here's another good article on the industry re-adjustment (me likes the term) that is going on.  By year-end 60% of China's production capacity will come from the low-cost locations Xinjiang and Inner Mongolia, which is a humongous structural shift in the industry.  The article says this is good news for downstream manufacturers since poly will only get cheaper:
http://guangfu.bjx.com.cn/news/20181010/932944.shtml

To me it looks like Daqo was myopic or deceitful when they suggested a scarcity of low-cost poly going forward.  They also said poly was going to increase in price until year-end and it looks like the opposite is true, poly keeps dropping week by week (check out the carnage this week).

Could we now please have a bullish voice on DQ to balance the picture?

If you are following the trends, Mono modules is taking a larger and growing market share. It is being forecast that Mono Modules will be 75GW in 2019. That is 65-75% of the market demand. Due to this the amount of high quality silicon  demand is on the rise while the lower end Si is not in as much demand. This can be found int he spreads of Si pricing. The High quality Si has held steady at the mid $12's ASP while the average and the low end continue to drop.

While there is large quantities of capacity coming online, this is going to take time to ramp to full capacity and to get the quality up to the high end range. This might suggest that the higher end range may continue to hold up then break into a down trend in Q2ish to Q3 2019.

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3 hours ago, SCSolar said:

If you are following the trends, Mono modules is taking a larger and growing market share. It is being forecast that Mono Modules will be 75GW in 2019. That is 65-75% of the market demand. Due to this the amount of high quality silicon  demand is on the rise while the lower end Si is not in as much demand. This can be found int he spreads of Si pricing. The High quality Si has held steady at the mid $12's ASP while the average and the low end continue to drop.

While there is large quantities of capacity coming online, this is going to take time to ramp to full capacity and to get the quality up to the high end range. This might suggest that the higher end range may continue to hold up then break into a down trend in Q2ish to Q3 2019.

Thank you for your more optimistic view.  I did notice the high-end of poly prices holding up well on PVInsights and this piece of data bodes well for DQ and its ASP.

However I cannot ignore the price trends for mono-grade polysilicon on the other two index sites (energytrend and PVInfolink) that have shown a clear erosion from around 95 RMB to currently 87-89 RMB/kg over the last two months, roughly since DQ's last con call.  It was on that call that Daqo said that they expected mono-grade poly to go up from 95-96 RMB at the time of the con call to 105 RMB/kg by year end.

Anyhows, there is still some market action left from here until years end.  GCL and Tongwei polysilicon is expected to hit the market starting this month but on the other hand demand was forecasted to increase in China big time as well.  Let's see what happens.

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China polysilicon makers start production at new plants
https://www.digitimes.com/news/a20181012PD212.html

"...Some China-based polysilicon makers have started production at new plants established in regions offering lower production costs, which is expected to send product pricing further declining amid weak demand, according to industry sources..."

This is what I've been talking about.  Hope everyone is out by now.

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