Daqo New Energy Corp. (DQ) Q1 2018 Earnings Report, Transcript and Summary

Good day and welcome to the Daqo New Energy First Quarter 2018 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kevin He, Investor Relations. Please go ahead.

Hello, everyone. I'm Kevin He, the Investor Relations of Daqo New Energy. Thank you for joining our conference .call today. Daqo New Energy just issued its financial results for the first quarter of 2018, which can be found on our Web site at www.dqsolar.com. To facilitate today's conference call, we have also prepared a PPT presentation for your reference. Today attending the conference call, we have Mr. Longgen Zhang, our Chief Executive Officer, and Mr. Ming Yang, our Chief Financial Officer. The call today will feature an update from Mr. Zhang on market and operations, and then Mr. Yang will discuss the company's financial performance for the first quarter of 2018. After that, we will 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. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement. Further information regarding these and other risks is included in reports or documents we have filed with or furnished to the Securities and Exchange Commission. These statements only reflect our current and the preliminary view as of today and maybe subject to change. Our ability to achieve these projections is subject to risks and uncertainties. All information provided in today's call is as of today and we undertake no duty to update such information, except as required under applicable law. Also during the call, we will occasionally reference monetary amounts in U.S. dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer these translations into U.S. dollars solely for the convenience of the audience. Without further ado, I now turn the call over to our CEO, Mr. Zhang please.

Hello, everyone, and thank you for joining us today for our earnings call. I am pleased to announce another excellent quarter of our operational and financial results in which we produced a record high 5,657 metric tons in polysilicon. We also broke our record for external sales volume during the quarter by shipping 5,411 metric tons. This strong growth in production and external sales volume is being driven by our continuing focus on improving manufacturing efficiency and maximizing our overall output. Demand for our high quality polysilicon products remain strong and allowed us to generate USD[103.3] [ph] million in revenue, a gross margin of 44.8%, USD31.6 million in net income attributable to Daqo New Energy shareholders. USD51.7 million in EBITDA, and an EBITDA margin of 50%. Polysilicon ASPs softened in February due to Chinese New Year holiday, but grew strongly in March as downstream clients resumed production. Demand for our ultra-high quality mono-crystalline grade polysilicon, in particular, which now accounts for approximately 60% of our total production volume, rebounded significantly after the holiday period, which can be seen in our record high production volume and lower inventory levels. We signed a 39,600 metric ton ultra-high quality polysilicon supply agreement with LONGi in early April that will span from 2018 to 2020, which underlines our reputation as a reliable and preferred supplier. Demand for our mono crystalline grade polysilicon also remains robust as we increasingly benefit from its price premium over our multi crystalline grade polysilicon and increased demand throughout the rest of the year. The latest industry forecasts indicate that the global solar installation will grow by approximately 10% to 15% in 2018. According to China's National Energy Administration, China installed 9.7 gigawatts of PV modules during the first quarter of this year, of which 7.7 gigawatts were in distributed generation projects and 2 gigawatts were in traditional solar utilities installation. Notably, there is a 217% year-over-year increase in China's DG installations. China's National Energy Administration also stressed the importance of the Top Runner Program, PV Poverty Alleviation Program, and the sustainable growth of DG projects, which are expected to continue to drive domestic PV demand. In particular, China recently announced that for the third phase of its Top Runner Program, approximately greater than 80% will utilize mono-crystalline solar-based perk high efficiency technology, which we believe will create a solid foundation for the sustainable long-term demand for our high purity mono-crystalline-grade polysilicon products. With rapidly growing customer demand for our products, we are accelerating the pace of our Phase 3B capacity expansion project and now expect to complete construction and installation as well as begin pilot production by the end of 2018. This will allow us to further reduce costs and ramp up to full production capacity of 30,000 metric tons during the first quarter of 2019. We are also pleased to announce the next stage in our capacity expansion plan, which complements Phase 3B. Phase 4A will increase our annual polysilicon capacity by 35,000 metric tons bringing total annual capacity to 65,000 metric tons by the first quarter of 2020. Design and construction of the new production facility will begin in May 2018, with pilot production expected to begin during the fourth quarter of 2019 before ramping up to full 35,000 metric annual production capacity in the first quarter of 2020. The entirety of our Phase 4 expansion plan will expand our manufacturing capacity by a total of 70,000 metric ton over 2 phases, Phase 4A and a Phase 4B, which will each consist of 35,000 metric tons of expanded manufacturing capacity. Phase 4A is an important milestone in our long-term expansion plan to meet surging market demand. This new facility will feature state-of-the-art equipment and technology and produce ultra-high purity mono-crystalline-grade polysilicon, which is in strong demand with only a very few Chinese manufacturers, who are able to produce. This additional capacity will improve manufacturing efficiency and is expected to further reduce costs by approximately USD1.70 per kilogram from current levels. Capital expenditures for this facility expected to be at around USD14 to USD15 per kilogram. We continue to focus improving manufacturing efficiency and developing additional technological improvements to further reduce costs, especially when it comes to our two biggest polysilicon manufacturing cost components, unit electricity consumption and unit silicon metal consumption. We made significant progress during the quarter by reducing unit electricity consumption per kilogram of polysilicon produced by roughly 10% year-over-year and unit silicon metal consumption by approximately 5% year-over-year. I am pleased with our strong start to the year and believe the USD110 million follow-on offering we completed last month demonstrates the market's confidence in our strategy, deeply experienced management team, and the sustainable long-term growth of the industry. As our newly added capacity comes on line allowing us to meet growing demand and our competitive advantages in polysilicon quality and production costs bear more fruit, we will be ideally positioned to solidify our position as the polysilicon manufacturing leader. Outlook and guidance. Now turning to our guidance. We expect to produce approximately 5,600 metric tons to 5,800 metric tons of polysilicon and the sale approximately 5,300 metric tons to 5,500 metric tons of polysilicon to external customers during the second quarter of 2018. The above external sales guidance includes shipments of polysilicon to be used internally by our Chongqing solar wafer facility, which utilizes polysilicon for its wafer manufacturing operation. Wafer sales volume is expected to be approximately 15 million to 20 million pieces for the second quarter of 2018. For the full year 2018, we expect to produce approximately 22,000 to 23,000 metric tons of polysilicon, which includes the impact of our annual facility maintenance. This outlook reflects 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 uncertainties. With that I will turn the call over to Ming, our CFO. He will go over our financials for the quarter. Ming, please go ahead.

Thank you, Longgen, and good day everyone. Revenues for the quarter were $103.3 million compared to $103.7 in the fourth quarter of 2017 and $83.8 million in the first quarter of 2017, despite an approximately 7% sequential decline in ASP as compared to Q4 2017, this was offset by a 6% sequential increase in polysilicon production volume. And as a result, we were able to achieve similar levels of value in Q1 2018 as compared to Q4, 2017. Revenues from polysilicon sales to external customers were $95.6 million, compared to $89.9 million in the fourth quarter of 2017 and $70.4 million in the first quarter of 2017. External polysilicon sales volume was 5,411 metric ton, compared to 4,730 metric ton in the fourth quarter of 2017, and 4,223 metric ton in the first quarter of 2017. The sequential increase in polysilicon revenue was primarily due to higher polysilicon production and sales volume, partially offset by lower average selling price. Revenues from wafer sales were $7.6 million, compared to $13.9 million in the fourth quarter of 2017 and $13.4 million in the first quarter of 2017. Wafer sales volume was 13.3 million pieces compared to 22.3 million pieces in the fourth quarter of 2017 and 22.4 million pieces in the first quarter of 2017. The sequential decrease in revenues from wafer sales was primarily due to lower sales volume and a lower average selling price for wafers. Gross profit was approximately $46.2 million compared to $46.9 million in the fourth quarter of 2017 and $35.9 million in the first quarter of 2017. Non-GAAP gross profit, which excludes costs related to the non-operational polysilicon assets in Chongqing, was approximately $46.6 million, compared to $47.3 million in the fourth quarter of 2017 and $36.9 million in the first quarter of 2017. Gross margin was 44.8% compared to 45.2% in the fourth quarter of 2017 and 42.8% in the first quarter of 2017. The sequential decrease in gross margin was primarily due to decreased average selling prices, partially offset by a decrease in average polysilicon production costs. In the first quarter of 2018, total costs related to the non-operational Chongqing polysilicon assets, including depreciation, were $0.4 million compared to $0.4 million in the fourth quarter of 2017 and $1 million in the first quarter of 2017. Excluding such non-cash costs, non-GAAP gross margin was approximately 45.2% compared to 45.6% in the fourth quarter of 2017 and 44% in the first quarter of 2017. Selling, general and administrative expenses were $4.8 million compared to $4.7 million in the fourth quarter of 2017 and $4.1 million in the first quarter of 2017. We expect SG&A expenses to remain at similar levels for Q2 2018 as compared to Q1 2018. Research and development expenses were approximately $0.1 million compared to $0.1 million in the fourth quarter of 2017 and $0.4 million in the first quarter of 2017. R&D expenses could vary from period to period and reflect R&D activities that took place during the quarter. Other operating income was $0.4 million, compared to $4.4 million in the fourth quarter of 2017 and $0.8 million in the first quarter of 2017. Other operating income was primarily composed of unrestricted cash incentives that the company received from local government authorities, the amount of which varies from period to period. Operating income was $41.7 million compared to $43.6 million in the fourth quarter of 2017 and $32.2 million in the first quarter of 2017. Operating margin was 40.4%, compared to 42% in the fourth quarter of 2017 and 38.4% in the first quarter of 2017. Interest expense was $4.1 million compared to $4.1 million in the fourth quarter of 2017 and $4.3 million in the first quarter of 2017. EBITDA was $51.7 million compared to $53.6 million in the fourth quarter of 2017 and $41.7 million in the first quarter of 2017. EBITDA margin was 50% compared to 51.7% in the fourth quarter of 2017 and 49.8% in the first quarter of 2017. Net income attributable to Daqo New Energy shareholders was $31.6 million compared to $33.7 million in the fourth quarter of 2017 and $22.9 in the first quarter of 2017. Earnings per basic ADS were $2.91 compared to $3.16 in the fourth quarter of 2017 and $2.18 in the first quarter of 2017. As of March 31, 2018, the company had $83 million in cash, cash equivalents and restricted cash, compared to $72.7 million as of December 31, 2017, and $61.2 million as of March 31, 2017. As of March 31, 2018, the accounts receivable balance was $2 million compared to $3 million as of December 31, 2017, and $13.1 million as of March 31, 2017. Due to robust customer demand for our high-quality polysilicon products, customers primarily paid for our polysilicon products in advance of polysilicon shipments. As of March 31, 2018, notes receivable balance was $49.7 million compared to $27.3 million as of December 31, 2017, and $11.7 million as of March 31, 2017. Our notes receivable consists of bank notes issued by domestic Chinese banks, which can be converted to cash upon demand. As of March 31, 2018, total borrowings were $217.8 million, of which $108.4 million were long-term borrowings, compared to total borrowings of $212.9 million, including $113.6 million of long-term borrowings as of December 31, 2017 and total borrowings of $236 million, including $129.2 million of long-term borrowings as of March 31, 2017. Now for cash flow. For the three months ended March 31, 2018, net cash provided by operating activities was $21.7 million compared to $28.6 million in the same period of 2017. The decrease was primarily due to increased notes receivable balance as of March 31, 2018. For the three months ended March 31, 2018, net cash used in investing activities was $11.5 million, compared to $16 million in the same period of 2017. The net cash used in investing activities in the first quarter of 2018, and for the first quarter of 2017, was primarily related to the capital expenditures on the Xinjiang polysilicon project. For the three months ended March 31, 2018, net cash used in financing activities was $2.4 million, compared to $16.5 million in the same period of 2017. Net cash used in financing activities in Q1 2018 and Q1 2017, primarily consists of repayments related to party loans and the payments of bank borrowings. This concludes our prepared remarks. I would now like to turn the call over to the operator to begin the Q&A session. Operator, please begin.

We will now begin the question-and-answer session [Operator Instructions]. The first question comes from Philip Shen of Roth Capital Partners. Please go ahead.

Congratulations on the nice results. Wanted to start with some of your expansion plans. You talk about RMB3 billion of CapEx required for the Phase 4A expansion. You just raised RMB 100 million plus through equity, I think you have some prepayments with LONGi. Can you walk us through what the sources of the cash will be due? For example, expect additional prepayments to support the funding of the Phase 4A expansion?

To answer your question, I think 4A total investment is around RMB 3.2 billion, equivalent to USD 500 million. And the CapEx, you see the sources come mainly from cash on hand, and also cash from operation, we believe is around like RMB 4.7 billion, equivalent to like USD 270 million, accounted for 54% is our own money. And we also received, I think LONGi declined RMB 200 million, around USD 30 million, the prepayment around 6%. So maybe short is around like 40% is USD 200 million around RMB 1.3 billion, that is coming from the banking loans, a possible bump. Today, we have banking facilities available is more than USD 200 million, so that's the source come from.

And do you think you would want to conduct another equity raise or do you think the rest though you would want to complement purely with bank loans?

Most likely, we will not go to the market for the – I think equity financing because based on right now, the funds available, and we believe, I think, the banking facilities and a possible bump is enough for us to support for a expansion.

Phil, to follow-up on what Longgen just said basically, if you look at our cash and cash equivalents, equivalents of the cash, last quarter was around $80 million, and that excludes the LONGi prepayments, and if we add LONGi prepayments and potential cash that we would generate for the next quarter, we're looking at well over $100 million. And then in addition to that, we have another $110 million from the most recent follow-on offering, and another $50 million in bank notes, which we can use to pay for our equipment purchases, for example. So I think just the cash on hand, there's a lot of liquidity for us currently and the remainder potentially we would use domestic Chinese bank borrowings, for example.

And would you expect another LONGi type contract as well, where you can pre-sell, maybe, to another meaningful buyer, and then get down payments from them as well or prepayment?

Philip, basically, right now the expansion lay out, I think, if you look at next year, the capacity is already there, more than 35,000 tons. By 2020, it's more than, I'm not giving guidance, okay, basically the capacity design 65,000 tons more than that. LONGi contract, next year is around 14,000 tons, and 2020, it's 18,000 tons. Yes, I think next 3 years, we still have liked more than 106,000 tons available, I think by 2021, okay. So basically right now, it's possible by the end of this year or beginning next year, sign another contract, for example, like with LONGi and to continue to supply for them. Then we're right now negotiating with other 2 major clients right now on the long-term contract. Yes, it's possible. We are planning to continue to sign long-term contracts to attract more prepayment.

So shifting gears, I think you talked about being able to reduce your cost structure by $1.70 from current levels of $9.20. Would the reduction just before, so that would suggest cost could be reduced to $7.50 per kilogram with the expansion of Phase 4A, is that blended or is that incremental? So is that $7.50 for the entire blended cost structure for all the capacity or would that just be for the marginal capacity or the expansion capacity? Thanks.

I think to answer your question, maybe Ming can continue to comment on that. You have to look, we right now is working on 3B, so as soon as 3B is fully ramped, okay, we believe we're $1 more lower than the current, okay. So that mean, if we finish 3B, so the cost will reduce to $8.20 per kg around. That means that actually the price will drop to $0.24, okay. Then right now, we are in negotiation with a government CC, and if possible, I think right now, it's going to right now, okay. $0.22 per kWH, but we want to more, okay. So even let's say based on $0.22, overall, so if we finish that 4A that's 35,000 tons, so that overall the cost would drop to $7.50 per kg, that's based on right now the current foreign exchange. So basically what I say is $1 lower than current level after we finish 3B. $1.70 lower, we're further lower then after we finish 35.10. Is that clear? So that means…

So that's blended?

Yes, blended.

So let's move to the ASP outlook. The June 30 poly ASPs domestically in China have kind of bottomed, I think, through March and April, especially through April week over week, the pricing has remained healthy. As we go through June 30, there's mixed reports is there a big rush this year or not, it's not clear. And then also it seems like the [DMEA] is pushing some new regulations and potentially caps for the DG segments, nothing is finalized, but that's what is out there. So how do you expect ASPs per poly, the trend in Q2 and Q3, and then, what do you see as the total demand for China this year, last year it was 53 gigawatts, do you see something closer to – something lower than 53 and if so, by how much? Thanks.

First of all to answer your first question, I think about ASP. Yes, during the first quarter, I think after Chinese New Year, the prices dropped down to even lower than like CNY 115 per kg but immediately bounced back. So if you look our first quarter, the average ASP is without – I think without tax is around $17.68 ASP, CNY131 per kg. And if look right now, especially these 2 weeks, the silicon price continue to go up. Today, I think the mono-silicon price is around like $130 per kg – no, CNY 130 per kg. Today, China, the value-added tax has dropped to, from 17% to 16%. So you divide it by $1.16, so it's around $17.68 on the mono-silicon. And the multi-silicon right now is around like $17 without tax. So we see strongly I think the price continue to go up. And the reason is because we see the downstream capacity, especially on the mono wafer is probably running right now, like LONGi is continuing expansion, like the way your other client, an example like even Jinko, even I see more – I see mono wafer capacity is running. Even multi, I think, capacity only the small and middle sign, maybe the capacity is not probably running. But for the bigger player, also is 100% running. So we see the demand is continue to go up. So that's why I do believe I think on Q2, the ASP should be, I think, maybe keeping the same as Q1. For the second half of this year, from my view, because we do not think too much polysilicon output come out, especially in China. The lower cost output come out. So I do not believe the polysilicon ASP in the second half of the year will go down. Okay. That's my projection. To answer your second question about the whole market. I think if you look at the global rate, I think robust continued growth. Even when I say, Algeria, I think just declared 4G gigawatts continue to go up. I think China is essentially a bigger player, last year, DG was 19 gigawatt. This year because of industrial DG, the government has put some, I think, restrictions, it's still I think negotiable, still I think a discussion right now, it's not final. But you have to see the poverty alleviation in the Eastern coastal area. Today, Philip, just as a example, I think a third proper runner. How much cost the bidding, the lower bidding, the price only RMB 31.5 per kwh asking for. The installed cost is how much everything together, equipment, everything land only RMB4 per kwh think about that, in the East China area, if the franchise may be 1,100 hours. So annually, generated maybe around [indiscernible] you can generate 1.1 kwh to 1.2 kwh, it's only 10%. So I think, the grid parity is near, the cost continue to go down. So that's why, I think a potential China market, I don't think, especially in DG you see, without government subsidies, I think, some area are really grid parity. So I see this year, DG, I don't think 19 gigawatt last year can be, we definitely we have broken the record. What I am thinking, the DG should be around like 30 gigawatts. Then the utility-scale maybe go down to 25 or 30, we still can keep the same, I think, the installation like last year. That's my projection.

And then finally you mentioned very quickly about, you don't see much competitor capacity coming online. Last year, we saw a very similar pattern, there is a lot of big announcements by East Hope and Tongwei and some others and that capacity actually wasn't necessary added to the system. Can you comment on what you're seeing today? I think, Wacker is restarting their Tennessee plant. I know it's very hard for them to get into the Chinese market, but it does add to the global supply. So comment generally about what you're seeing competitively? And then, given your expansion plans it seems like you think some of that may not come online as announced. And so if you can give us some detail around that, that would be great.

Okay. First of all, I'm not comment other people, you see the other player. But we have to know other player, you see what they are doing? Basically, if you look today, most lower cost, I think, plant is in Xinjiang. So if you look, I think, GCL right, GCL I think they declared 40,000 tons in Xinjiang. As we know, they may be partially or starting production by the end of this year as we know. Maybe around 10,000 production we're starting end of this year. So not adding the capacity of this year, but maybe you are adding capacity in 2019. Then if you look, I think, TBEA, I think they have declared I think, 36,000 tons and majority, I think they were starting production. We already know projection is early 2020. They maybe a little early, come up end of next year. Then Tongwei, as you know there are 2 plants, I think each is 25,000 tons, one is in Lufeng, one in Mongolia. I think they already their planning is end of this year. But as we know that, there may be delayed into I think early next year. So basically this year is not too much adding but next year, yes. I think we are adding maybe around 10,000 tons. But as I mentioned there, you have to look today, the lower cost in China, if you look at today based on right now, renminbi exchange rate is RMB 6.35 per dollar. Basically, below $11.5 per kg, today in China, is not too much severe, less than 1 is on 10. Even you add by 2020, with calculation, let's say, in China if lower $11.50, maybe below 270,000 tons. But the consumption last year, it's already 460,000 tons. Just you like mentioned there, OCI Wacker, they import -- their cost is higher basically, I'm not commenting there. So if you look at the history, the ASP below $13, $14 bounce back. That's major reason because it feeds the cost, average cost, the important part is the cost. So that's why bounce back again. Yes, maybe by 2020, the hurdle will go down, if not $13, $14, maybe go down to $11.50 to $12.00 and then bounce back. So that's why the whole philosophy and a strategy why we are going to expansion that 4A because we want to start try production by October next year, because we can see if we are starting, full capacity running maybe possible, the Q4, than whole running on 2020. And by 2020, we are the lead player, the low-cost, high-quality to meet the downstream decline, that's the whole philosophy.

Great. Longgen, Ming, thank you very much. I’ll pass it on.

Great. Thanks. Phil.

[Operator Instructions] The next question comes from Brad Meikle of AMPAC Research.

Could you talk about the tone of the market so far as with customers, would you say the market's an allocation, and do you think that will continue for the rest of the year?

I'll first answer your question, I think, right now all major clients I think is like LONGi, like Jinko, like Tongwei also is Asia Company. Tongwei is, maybe you're not familiar;its 22 gigawatts by the end of this year on wafer capacity. Then also Trina, then also a lot of I think perhaps more than 10 medium clients, major I think the Asia Company. So basically we'll continue working with them, especially I think on the mono silicon supply client, the major forecast right now is 5 to 6 clients, because we didn't have enough right now to supply to our clients, like LONGi, right now is 800, I think it's 810 per month, and they're asking extra, so basically now it's not available for them. On the multi-silicon Jinko Solar, Trina still is our major client right now, and also other client. So basically right now, we think we are negotiating with, the 2 major clients right now, we're try to sign long-term contract to cover maybe 3 years to 4 years, next 3 years to 4 years supply based on our expansion. Maybe Ming can…

I'd say the market is very tight for polysilicon, particularly for the higher grade, for the mono crystalline solar type of products, where we don't have enough products to serve our customers, and customers have much higher volume requests versus our ability to produce and supply.

What portion of your output today would you say would be high quality enough for mono and where is that number going like by the end of the year and the end of next year?

I think first quarter is around 60%, right now is mono and 40% is, I think, is multi, but for the second quarter, I think as a percentage will continue to increase to 70% to 80%, so basically by the end of this year, I think just based on right now the capacity, okay, I think, maybe around 80%, but the 3B is 100% is mono. So next year, I think is 35,000 tons, so more than 90% is mono, then I think 4A that additional 35,000 tons expansion that's by 2020, I think also is 100% for the mono. So basically by 2020, I think we should be like 95% is mono.

As to the key difference for us compared to a lot of our other polysilicon producer peers, particularly within China, is we're one of the very few that could deliver the mono grade type of product in very large quantities in a very stable supply. And this is very much in demand right now.

Yes. I thought it was harder to ramp up the higher quality capacity, how you have guys been able to do that so quickly this year, or to convert to a higher quality output?

I think the major, I think, the technology, I think that we have is on the finished products department, then also on the, I think recycling technology, I think I cannot specifically detail, the reason is because we have more innovation and know-how, priority technology improvements under Siemens NASA you see, that's why we're learning from our experience, because we buy whole sets of technology from Siemens in 2008, so that's why we're learning from our experience. Today, only a few can manufacture mono silicon basically TBEA and another small player. So if you look at that industry, everybody know that. We are, I think, at the lower cost compared to TBEA because TBEA even they run their own electricity power plant, you can look at their financial statements, and compare the gross margin, you can to see the cost. Basic example, like mono silicon, they have to further clean to selling to the clients. We needn't clean, our finished product departments is all starting the depository come out broken always automatically, and working on that. So basically, it's a lot of I think technology know-how or operational key data, all those stuff.

Brad, I think it is a very steep learning curve to do this, and we're talking about removal of elements like iron, boron, phosphorus, carbon, oxygen from the silicon on a parts per billion basis. So I mean for some of the competitors, who are used to supplying internally, for example, for all multi-crystalline type of production, they have no motivation to go through the learning, that’s how we did, it took us maybe 3 years working with some of the leading mono silicon technology companies, even companies that was doing anti, so I mean, we went from 10%, 20% to now 70%, 80%, and it takes a long time to do this and it's not easy at all.

Just a last question is on the supply growth, some of the new supply has been challenged to come on, overall, what would you say is the supply growth of China polysilicon output this year and next year, and what – if you consider the reduction of grams-per-watt, do the diamond wire saw transition, what do you think is the actual change in supply there?

If you look last year, total supply, I think the whole consumption in China, because wafer manufacturing mostly in China, right? So last year, total is 460,000 tons last year, of which I think 160,000 tons is import from OCI and Wacker. Then China total manufacturing is 300,000 tons, so you have to look, there are 300,000 tons in China, I think the proper ones you see are 75,000 tons. If you look, then TBEA is 30,000 tons, then Tacha and Tongwei is 20,000 tons. But if you look at the cost structure, you see the majority in China today, the cost based on today's foreign exchange rates, you saw it mentioned there. I think a major, maybe around like, what I say is more than 200,000 tons, that cost is about $11.50 per kg, okay. So, yes, then the new, I think, capacity investments come in and today, I think the first one is New Hope, New Horizon all you call, right? I think the first production line is 150,000 tons – I think 15,000 tons starting part of the production is end of 2016, so we still didn't see the sellable quality used by the bigger player downstream wafer manufacturing. They are still working hard on that, maybe I think, later they can, I think to ramping up their output. But I believe I think like Tongwei, like TBEA, TBEA just declared 36,000 tons, and they maybe come out early 2020, and also GCL declare 40,000 tons, but I think the first some tons will come out, I think, end of this year. So basically what I say, the lower costs, when I say it will be low, the cost will be low $11.50 is not available there. What I'm calculating here, this year may be around 100,000 tons, next year maybe around 200,000 tons, then by 2020 is around 275,000 tons is there. So that's why I answered your question, okay. So if demand – supply is over demand, then I think the high cost, especially imports, then also the high cost Chinese producer, those are high cost, above $11.50, maybe will be wiped out, will be consolidated. Then consider also the demand side, you just mentioned that. Yes, I agree with you. Mono-silicon, because of the high efficiency, actually per watt consumption silicon is go down, but you have to consider that. Today, I just mentioned that, the installation per watt, total cost in China is CNY 4 per watt. That's equivalent of how much USD 0.80 per watt. Then, if you look at the sun shine, you can generate, let's say, 1.2, 1.3 in the Eastern Coast of China. Right. So what's the return, it's a high return there. So they modified what I think is the potential robust, but globally I think it would continue to grow. When I think of this year, last year is around 90-80 gigawatt, this year definitely I think we'll go to 110 gigawatt. But if conservative people think, it is like 105, but also aggressive 120. But I think the consumption of silicon will continue to go up. The reason is why because the mono silicon is full capacity running. The multi still not shut down. The wafer capacity is still running. The only middle, and small and medium wafer facilities were shut down. So the capacity will continue running and especially in China, people have to know that even the top run project, we see is not installed, in 2017, we still have a lot, will shift to 2018, 2019 to install. So, basically what I think potentially this year the demand should be not below 46,000 tons on the silicon side, I think maybe that increase if the installation of the downstream, let's say, increase 20% let's say but silicon definitely will increase because of high resistance still of some but at least will increase like 10%, 5% to 10%. Meikle, did I answer your question?

Thank you. Yes, 100 ton and 120 demand sounds right to me.

And also some consumption maybe [indiscernible] because, you see multi-silicon capacity still is there, the wafer capacity, they are still running.

Yes. Just last clarification is what's your assumed grams-per-watt consumption this year just on average for the industry compared to last year?

Are you talking about the multi or mono?

I guess, I was asking for both, if you want to break them out…

I think I have the figure there. I think for the multi, maybe around like 4.2, 4.3 gram-per-watt. For the mono, is around 3.5 to 3.6. It depend on the diamond saw, you see right now continue to become sync, right now it changed to 72, 65, 60, 60 millimeter, whatever. So, yes, I think per watt, I have the figure, okay, calculation.

Do you have an average number for last year and this year just some --?

I think, I have the figure for you, let's see, basically, I think right now, I can tell you what being okay. Per piece, wafer right now, I see multi maybe around like, generated around like 4.5 watt and for the mono is around like 5.8. So it's easy for your calculation. I think for per piece consumption, yes, is around like 4.5 gram.

This concludes our question and answer session. I would like to turn the conference back over to Kevin He for any closing remarks.

Thank you everyone again for participating in today's conference call. Should you have any further question, please don't hesitate to contact us. Thank you very much and bye-bye.

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