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Daqo (DQ)

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Guest eysteinh

Explo they wrote down a lot of old costs too. If you read the cc they are using old equipment from wangzu also. This will obviously drive down depreciation costs. on the cc they claim 3$/kg depreciation for 2015. Have to say hats off to daqo. They will have 10$/kg simens costs in 2015 (cash cost) http://m.seekingalpha.com/article/1858381

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Guest joshchang

Explo they wrote down a lot of old costs too. If you read the cc they are using old equipment from wangzu also. This will obviously drive down depreciation costs. on the cc they claim 3$/kg depreciation for 2015.

And low electricity rate in Xinjiang as well. About half of what they paid in Wanzhou.

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Guest eysteinh

Yeah they even got a government discount on electricity. Wish I saw this one comming. Btw this is GREAT news for china producers of wafers etc. Especially jks with spot prices should benefit long term.

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There are quite a few great pieces of news from the call:

 

(1) Their current ASP is about $19

(2) There is already a poly shortage now in China and they think it will continue into 2014

(3) Based on their view, there is a shortage of 50,000 MT worldwide in 2014. Additional capacity is not likely to be added until poly gets above $20 or some existing producers manage to get their cost down to be profitable.

(4) They are not eager to sign any long-term contract now, meaning, they are confident that they could pick buyers when the new capacity comes online.

 

And, guys, have you noticed this? I'd been thinking how much it would cost DQ to build the new capacity, well, I'm kind of shocked.

 

(5) Their parent company, DQ Group, gives them an interest free loan (a cool $100 million) !

      (I wish HSOL had a daddy like that, sigh)

 

Points (2) and (3) are really good news for SOL holders.

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More than good in fact. :))

 

It had started as a pure speculative play for me but slowly I became more convinced that it will reach $50 in Q1 14 and $70 later next year. I'd say it became an investment for me once the news broke out about their 25,000 MT expansion. If the current solar installation projection pans out, I do see DQ has a very bright future.

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Guest eysteinh

Sunnysky I would agree and then disagree somewhat for the more long term view. They say also another producer in same region will ramp up. And this proves simens can reach 10$/kg cash cost. Meaning there will be others. Yes we might have a short term squeeze (good for sol!) but the long term trend is crystal clear, it is lower asp. (still good margins if reducing costs.) Notice also the low capex they use to ramp up. 100 mil usd for 6250 mt. Thats like 16$/kg. I am quite suprised in fact. I knew reactors where cheap, but that they now in China have managed to drive down support system costs this much too.. very very impressive. But this also means it is HIGHLY profitable to add more capacity currently. If you can reach 12$/kg and asp is 20-23$/kg now..and capex is 16 you can allmost pay it back in 2 years.. (not even calculating the deprication is part of the 12$/kg) thats a no brainer expansion.

 

I still like sol as a small holding since this is not going to happen magically overnight, we might very well get a polysilicon squeeze in 2014, and also sol is a great company and is very near net profit now, and thus undervalued given current market prices. 

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Eyeteinh, I agree with you - shortage does not necessarily mean ASP will go up. The top producers would like to keep extra capacity at bay while they continue to make sizable profit. On the other hand, if installation really goes through the roof poly ASP will rise.

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Also, the $16/kg is possible only because DQ is using the old equipment from the Wanzhou plant. What do you think the cost would be now buying everything anew?

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Guest eysteinh

Around 14$/kg for anyone in china, this is not just random toughts but what GTAT has said about its reactors in a large scale environment (around 10000 mt - for the 1000sdr version)  around 13$/kg for anyone in the low electricty region. Around 12$/kg only because government deal on electricity so this is currently exclusive to daqo. I think the other player in this game currently is gcl - I expect to see fbr at 9-10$/kg from them.  2014 will be a year of major swings in polysilicon prices and then huge news for the end of 2014 and 2015. All numbers i quote are the total costs. Typing this I find it a bit hard to believe but it all makes sense when you really start reducing electricty costs (this is a big deal for simens reactors since they are not as energy efficient as fbr.)  I think still fbr has a future since it is much less energy intensive.  Now I really wonder what OCI will do in korea. I know they and GTAT are quite tight in cooporation. But what I am wondering is if capex will be higher - that this is in fact a chinese advantage and that the chinese suppliers figured out how to build all the support system much cheaper than the western suppliers can provide currently. For me this is the real story, the huge drop in capex. 

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Sorry, I meant the cost to build the plant in my question.

 

Regarding to FBR vs modified Siemens, DQ has made some comments. Basically:

 

(1) FBR is more involved and complex to build and operate

(2) FBR produces lower grade poly

(3) FBR poly sells for $3 to $4 less

 

What do you think?

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Guest joshchang

Nice comments eyesteinh. Gcl will start using electricity from own power plant next year which will give them similar rate as dq gets.

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Guest Rommel

I assume you meant 12,000MT. And they are saying with 12,000 MT they can go to $12/kg. But for 12,000MT that is spring of 2015 as it will get construction completed and start of trial runs at the end of 2014.

 

Yes, I meant 12,000MT (12K MT) plant. 

 

Here is from DQ:

 

"We are currently in the final stage of the 6,150MT expansion project. We will start trial production by end of November and our total production cost will be lowered to $14/kg level when we complete the trail run."

 

Doesn't this mean that the additional capacity to 12,000MT is starting trial production now?

 

Now, I keep wondering about SOL now. Don't they have 10,000MT capacity and after siemen's upgrade it is supposed to hit $18 ($14 with depreciation)? That poly plant will alone be worth a LOT then? Isn't what Explo has been saying for a while now?

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Guest Lepv123

Their cost cutting on poly seems relentless and if GCL can follow the cost cutting path then most CN solars would probably have a stable or lower poly input cost next year.

 

So Josh, will this help to improve GM of CN Solars even more? Thanks.

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Guest eysteinh

(1) FBR is more involved and complex to build and operate : Yes - especially silane based FBR. (and this is the only cost effective way to do it, to set up a silane fbr you need to have special permits in china due to explosion danger)

(2) FBR produces lower grade poly  : No it does not have to at all. REC FBR A (first reactor they built) produces lower grade poly. Average production of fbr in market now: Yes. 

(3) FBR poly sells for $3 to $4 less : No. If you are talking about rec fbr a - then yes. 

 

@ Joshchang yes I am aware but nice of you to highlight the fact GCL will sell electricty to itself. It could post impressive numbers for polysilicon if they sell at discount. 

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Guest joshchang

So Josh, will this help to improve GM of CN Solars even more? Thanks.

Assuming module asp stays stable and lower poly asp, yes this will help to expand gm for most cn solars. Low asp will help to stimulate demand as well.

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Guest Lepv123

Assuming module asp stays stable and lower poly asp, yes this will help to expand gm for most cn solars. Low asp will help to stimulate demand as well.

Thanks Josh! Much appreciated. Still got my JKS for right now.

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I think this new thing about low cost poly in west China is going to change the PV landscape a bit. First off, the point with toxic, inefficient thin-film solution becomes harder to and harder to see. Secondly poly plants outside China or even in east China might have a tough time staying competive. Norwegian REC with its plants in US is thinking about betting on China sites instead in future.

 

The first realization of western poly plant was that; "Oh, it costs us 80-120 $/kg to build plants with low cash cost outside China, but only 20-30 $/kg in China for same advanced plant". So that's $13 cash for both, but $25 x 0.16 = $4 deprection (10%) and interest (6%) for China and $100 x 0.16 = $16 for us. Hmm, no good. Now, to twist the knife west China is achieving much lower cash costs too. I know Eystein said MG-Si sourcing was already half the cost in China, but it seems a lot more (like electricity in west China) could be lower of the cash cost post.

 

Hemlock, Wacker, OCi, First Solar are not happy I think. DQ is happy, since they moved all poly equipment to west China. GCL and LDK are in east part I think and SOL's Sichuan is in the west, but maybe not as "west" as DQ's Xinjiang. Wafer makers and further down stream should be happy, but maybe wafer capacity in China are happiest due to the better access to cheap China poly.

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What I read in their transcript, was current production (refers to October) was $15.16. This is not including 6,150MT as still not at full capacity.

When this is done, the cost will be $14.00. When asked about depreciation, they said it is $4 per kg. So they are basically doing a cash at $10.00.

Depreciation for the full plant maybe slightly reduced, but cash cost will dip below $10. This is where it seem to get interesting. Upon doubling the size to 12KMT, their cost will be at $12, with amortization/depreciation around $3, this means cash cost of $9.00 per kg. 

Is it possible that Renesola's performance is being shadowed by those achievements, we are talking about $4 overall cost not favorable to SOL. 

 

DQ also confirmed that prices have a ceiling and the 50KMT are about 9GW.  

I think their view that poly is being produced at $19, is a view on current production for China. Wacker, OCI are below this number, therefore $20 is the ceiling in my opinion. I think there is also a lot of inventory out there. I see that by 2015, things will need more poly, but I also see big expansions to take shape by majors. I see poly to drop to levels of $16 to $17 per kg during that period. 

So this bring the question for SOL. Currently they are looking to achieve $18 full cost.  There is a theory that upgrades of $70M are to address the gap between that and Daqo's $14. What will address the gap between $14 and $12.

If all said an done a long term picture could be $16 poly in 2015, SOL is looking rather pale with current struggles and future conditions. If the to-date actions to be a template of the future it may take a long time remain beyond that pricing level. Is this a scenario to watch for? 

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Guest eysteinh

I would watch the sol conference call carefully for updates on polysilicon. I think electricity should be at most 1$/kg difference between sol and daqo so I do not see why not sol could reach cash cost of 11$/kg and maybe a total cost of 15-16$/kg.  (not including sg&a and interest ofcourse) Unless daqo bought superior technology to sol. I do not know what reactors daqo used vs sol, so if someone can give me the names of the suppliers I could search into this.

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I would watch the sol conference call carefully for updates on polysilicon

Absolutely, essential piece there. I am having hard time to understand this sudden ability in DQ, and somehow lagging state of SOL. How is DAQO managed to bring production so quick down how is existing 6KMT, and additional 6KMT is going to have a "total" production of $12 cost?

The last add-on has to be $8 cost total to make $12. Am I off on numbers here, or Daqo is? Or the 6K thy have is so flexible that their incoming upgrade is exactly the same what they have. Why SOL is disconnected with their 3.5KMT of the old plant? 

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So DQ says current ASP is $19 not $17. Anyone know what ASP are they talking about?

this is the reply to your question, there is range in pricing. Daqo Group buying poly from Daqo can buy it at 19, to have other components made by the third parties, but overall market is down.

http://www.altenergymag.com/news/2013/11/20/pvinsights-polysilicon-prices-keep-the-momentum-of-the-continuous-slight-drop-this-week/31456

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There is a lot of self promotion, misinformation on the market, some big research groups where pounding the fist at the table top about $20 to $25 poly prices this year. People think in limited dimensions, about poly consumption, while market trendsetters reduce poly in watt at greater percentage now then ever, using better tools and significant changes in cell structures. Poly cells are lot higher in efficiency and they use least amount of poly and the purity is not a concern (as much).  

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page 16 of this presentation, shows oversupply poly condition to beginning of the 2015. 

http://www.oci.co.kr/eng/invest/ir_presentation_view.asp?idx=425&pageNo=1

 

Daqo statements are incorrect or self-serving, look at the page 17 of the same. Poly margins,  which include COGS, are above 0%, this means that majors, produce below the spot. Daqo is a small player with local clientele. Sure our companies supplement, but that is it. I will take OCI info over anyone's in China. 

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GCL's comments that they need ASP of $20 to break even

 

This is about profitability not GM. All major companies globally are GM positive in 2013. This does not  mean they are profitable. Daqo comments imply that poly makers in 2013 have negative margins or sell below their spot, meaning dump. Sound very reasonable to say that for the company which is supported by government to erect 6000MT plant. One needs to get a permit these days and offer cost breakdowns to do it, supporting policy publically is not a surprise 

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How can a supplier with 65,000 MT, more than 10x the capacity of DQ, be saying that they need $20/kg just to break even now while for years they've been feeding the street and investors horse manure with their lowest cost poly? Where does the truth lie? 

I think you are talking apples and oranges. As  I said breakeven is the quota referring to profit. They are not producing at full capacity either (GCL). Wacker was "almost" producing at full capacity a month ago, and sold some out of the inventory due to demand. OCI is not even producing at full capacity.  

If they all are, with some of the inventories and new entrants to support a lot more than 40GW. Sine lowering content of poly per watt is an objective of cost reduction by 0.2g makes a 2GW difference.  from 5.2 to 4.8 is almost 4GW of modules on 200KMT. By the Q3 2014, price will be over $20, and in 2015 you should see poly go higher, but for a short time. By 2015 you will have maybe as much as another 50K added. I think companies will cash flows with expand a lot. I can see OCI to go to its original plan to 80KMT as scale reduces cost. Wacker, GCL again TBEA, can double its 12 to 24. It takes a lot less time to build these days as well. 

added: 50GW is running solely on Solarbuzz, those guys made a lot fo errors.  If DG does not work to scale as expected in China, target 12GW is easily a 10GW or less.

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That Wacker plant being built in Tennessee is increible expensive. Depreciation and interest cost alone would be higher than DQ. Why build an expensive plant there, when customers are in China and U.S. declared solar trade war on them? Sounds like massive stupidity.

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Btw, SOL phase I was old and expensive. Phase II new and cheap. Upgrade of phase I and integration of it with phase II gave blended cost $18. Mathematically this means their phase II was at 16.5 $/kg, while the 3.5k phase I was a lot higher. I thought $16.5 was good and that SOL had kind of a lead there. Now comes DQ with the $12 blended target. WTF. I only hope it is based on things SOL can utilize too. Getting into the poly game is not easy. I think ability to build low cost poly plant as well as low cost generation capacity both have a role in China. After the poly plant you need to convert poly to panel and install it at low cost to get the cheap PV plant. Poly plant is the ultimate insurance to build low cost PV plants when more PV is installed than can be supported by operating low cost poly production capacity. GCL model. I'm sure DQ, like GCL and OCi will build generation capacity in future too. I would like to hear SOL talk about building projects. They were one of the first CN11 to get a utility segment with their Qinghai plant connected to grid in 2011, but have not aggressively grown their pipeline since then. I think it is time to do it soon, but they have a lot of other things on their plate with poly, inverters and the residential kits. I hope they discuss strategy at least.

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