Daqo New Energy Corp. (DQ) Q1 2023 Earnings Report, Transcript and Summary

Good day and welcome to the Daqo New Energy First Quarter 2023 Results Conference Call. All participants will be in a listen-only-mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference to Kevin He, Investor Relations for the company. Please go ahead.

Hello, everyone. I am Kevin He, the Investor Relations of Daqo New Energy. Thank you for joining our conference call today. Daqo just issued its financial results for the first quarter of 2023, which can be found on our website at www.dqsolar.com. To facilitate today’s conference call, we have prepared a PPT presentation for your reference, which also can be – which also you can find in our website. Today, attending the conference call, we have our CEO, Mr. Longgen Zhang; and CFO, Mr. Ming Yang; and myself. So today, 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 statements. Further information regarding these and other risks is included in the reports or documents we have filed with or furnished to the Securities and Exchange Commission. These statements only reflect our current and preliminary view as of today and maybe subject to change. Our ability to achieve these projections is subject to risks and uncertainties. All information provided in today’s conference 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. Now, without any further ado, I now will turn the call to our CEO, Mr. Longgen.

Thank you, Kevin. Good evening or good morning everyone. Our efficient operation of polysilicon facilities in the first quarter of 2023 resulted in the production volume of 33,848 metric tons. Our production cost decreased by 5.5% in Renminbi terms primarily due to a reduction in the procurement cost of metallurgical-grade silicon powder. For the quarter, we generated $490 million in EBITDA with strong operating cash flow and maintained a healthy balance sheet. Our cash balance further improved to $4.1 billion and our combined cash and bank note receivable balance reached $4.9 billion. In April, we completed the construction of our Phase 5A which is 100,000 metric tons polysilicon project in Inner Mongolia and successfully started initial production of polysilicon. We expect to ramp up production to full capacity by the end of June 2023, bringing our total polysilicon nameplate capacity to 205,000 metric tons per annum. Therefore, we expect our total production volume to be approximately 44,000 to 46,000 metric tons of polysilicon in Q2 2023, an increase of 30% to 36% as compared to Q1 2023 and approximately 193,000 metric tons to 198,000 metric tons of polysilicon in the full year of 2023, an increase of 44% to 48% as compared to last year. In addition, based on the latest project schedule, our new semiconductor-grade polysilicon project with 1,000 metric tons annual capacity is expected to be completed and start pilot production by the end of September 2023. With its new fully digitalized and highly automated production system, we believe our Phase 5A Inner Mongolia project will bring in the company to a new level in terms of the overall competitiveness including its production capacity, low cost structure and superior product quality. Polysilicon demand was weak in January due to the seasonal slowdown in the solar PV industry. In February, lower module prices stimulated end-market demand causing a meaningful recovery in demand and price improvement across the solar value chain. In March and April, polysilicon ASPs declined gradually due to increased supplies and constrained short-term demand for wafers caused by the limited supply of high-purity quartz used in silicon-ingot production process. Despite the ASP decline in the quarter, in our major operational subsidiary Xinjiang Daqo, we still achieved very strong gross margin of 71.4% and robust net income after-tax per unit of polysilicon sold of approximately RMB115 per kg, which we believe is significantly higher than those for many of our competitors and reflect our outstanding quality and cost structure. Recently, we have seen a clear trend that the ASP gap between high quality and lower quality polysilicon has started to enlarge and the demand for high quality N-type products is increasing. We expect that this trend will enable us to differentiate ourselves from our competitors based on our high quality and lower cost polysilicon ready for the next-generation N-type technology. We believe that the overall demand for solar PV will continue to grow in the coming quarters and that continued capacity expansions by downstream manufacturers will lead to further increases in polysilicon demand. In the second quarter of 2023, our Phase 5A project will start to continue a meaningful output of approximately 10,000 metric tons to 12,000 metric tons of polysilicon. We plan to reduce our inventory to approximately 5,000 metric tons by the end of the second quarter. To achieve this, we will need to increase our shipment to 59,000 metric tons to 61,000 metric tons in Q2, an increase of 133% to 141% as compared to Q1. In November 2022, our Board of Directors approved a $700 million share repurchase program, effective until December 31, 2023. As of now, we have already spent $85.1 million and repurchased approximately 1.688 million ADS. On April 6, 2023, our subsidiary Xinjiang Daqo’s cash dividend plan for 2022 was approved by its shareholders’ meeting. Therefore, as a 72.7% shareholder of Xinjiang Daqo, we expect Daqo New Energy to receive the dividend distribution in May with an amount of approximately RMB4.96 billion after-tax, which could be the financial resource to implement the improved share repurchase plan. We believe a new era for solar PV has just begun. The continuous cost reduction in solar PV products is expected to create substantial additional green energy demand likely exceeding most analysts’ expectations. It is generally expected that solar PV will eventually become one of the most important energies to power the world. In addition, as solar PV technology keeps evolving, we believe that the increasing needs for polysilicon of very high purity will help differentiate us from our competitors thanks to our ability to produce the type of polysilicon required for the next generation of N-type technology. We will continue to maintain solid growth and make sure to have one of the best balance sheets in the industry in order to capture the long-term benefits of our global solar PV market. Now, let’s move to the outlook and guidance. The company expects to produce approximately 44,000 metric tons to 46,000 metric tons of polysilicon during the second quarter of this year. The company expects to produce approximately 193,000 metric tons to 198,000 metric tons of polysilicon for the full year of 2023, inclusive of the impact of the company’s annual facility maintenance. Now, I will turn the call over to our CFO. Ming, please.

Thank you, Longgen and good day everyone. Thank you for joining our earnings conference call today. Let me start with the discussion on our company’s balance sheet and our strong cash position. As Longgen indicated, the company ended the first quarter of 2023 with cash balance of $4.1 billion, which is an increase of more than $600 million as compared to the end of 2022. Inclusive of the company’s bank note receivable balance of $791 million, total cash and bank note receivable balance reached $4.9 billion at the end of the quarter. These bank note receivables are notes issued by major domestic banks used for trade financing purpose and can be either immediately redeemed for cash or used to pay suppliers for raw materials and equipment purchases. On a per share basis, reflecting Daqo New Energy Corp.’s 72.7% ownership of our operating subsidiary, Xinjiang Daqo. This equates to approximately $45.70 per share of ADS. This represents the value of the cash alone excludes the value of our property, plant and equipment, which at the end of the quarter has a $2.8 billion value on the balance sheet as represented by our two world class polysilicon production facilities, which has combined nameplate capacity of 205,000 metric tons and continue to generate healthy operating cash flow on quarterly basis with our leading product quality and low cost structure and this is witnessed by more than $800 million in cash flow from operating activities in the first quarter of this year. With regard to our capital expenditure and capacity expansion plans for the first quarter of 2023, purchase of PP&E was approximately $277 million, which was primarily related to our polysilicon projects in Baotou City, Inner Mongolia. At the end of March, approximately $1.2 billion had already been spent on the Inner Mongolia Phase 1 project with total planned CapEx of approximately $1.4 billion. We expect the remaining $200 million will be spent by the end of this year. For Inner Mongolia Phase 2, we expect total CapEx will be approximately $1.4 billion as well. We currently expect CapEx related to this project will be approximately $800 million for this year and the remainder will be paid in 2024 and 2025. For the Inner Mongolia Phase 2 project, the project construction schedule maybe adjusted based on market conditions and we may adjust both project construction schedule and project progress and capital expenditure plans accordingly. Now, I will discuss the company’s financial performance for the first quarter of 2023. Revenues were RMB709.8 million compared to RMB864.3 million in the fourth quarter of 2022 and RMB1.28 billion in the first quarter of 2022. The decrease in revenue compared to the fourth quarter of 2022 was primarily due to a decrease in average selling prices. Gross profit was RMB506.7 million compared to RMB668 million in the fourth quarter of 2022 and RMB830 million in the first quarter of 2022. Gross margin was 71.4% compared to 77% in the fourth quarter of 2022 and 63.5% in the first quarter of 2022. The decrease in gross margin compared to the fourth quarter is primarily due to lower average selling prices mitigated by lower production costs. SG&A expenses were RMB41 million compared to RMB44 million in the fourth quarter of 2022 and RMB15.5 million in the first quarter of 2022. SG&A expenses during the first quarter includes $28 million in non-cash share based compensation costs related to the company’s share incentive plan compared to RMB28.4 million in the fourth quarter of 2022. R&D expenses was RMB1.9 million compared to RMB2.7 million in the fourth quarter of 2022 and RMB2.1 million in the first quarter of 2022. R&D expenses can vary from period to period reflect R&D activities that take place during the quarter, which primarily related to our quality improvement initiatives. Income from operation was RMB463.8 million compared to RMB623 million in the fourth quarter of 2022 and RMB796.9 million in the first quarter of 2022. Operating margin was 55.3% compared to 72% in the fourth quarter of 2022 and 62% in the first quarter of 2022. Net income attributable to Daqo New Energy Corp. shareholder was RMB278.8 million compared RMB232 million in the fourth quarter of 2022 and RMB535.8 million in the first quarter of 2022. Earnings per basic ADS, was $3.56 compared to $4.26 in the fourth quarter of 2022 and $7.17 in the first quarter of 2022. Adjusted net income attributable to Daqo New Energy shareholders, including non-cash share-based compensation costs. Excluding non-cash share-based compensation costs was RMB310 million compared to RMB363 million in the fourth quarter of 2022 and RMB538 million in the first quarter of 2022. Adjusted earnings per basic ADS was $3.96 compared to $4.65 in the fourth quarter of 2022 and $7.20 in the first quarter of 2022. EBITDA was RMB490.2 million compared to RMB648.5 million in the fourth quarter 2022 and RMB826.8 million in the first quarter of 2022. EBITDA margin was 69% compared to 75% in the fourth quarter of 2022 and 64.6% in the first quarter of 2022. Now on the company’s financial condition. As of March 31, 2023, the company had RMB4.13 billion in cash and cash equivalents and restricted cash compared to RMB3.52 billion as of December 31, 2022 and RMB1.12 billion as of March 31, 2022. And as of March 31, 2023, notes receivable balance was RMB791 million compared to RMB1.13 billion as of December 31, 2022 and RMB1.5 billion as of March 31, 2023. Now on the company’s cash flows. For the 3 months ended March 31, 2023, net cash provided by operating activities was RMB807 million compared to RMB231 million in the same period of last year. And for the 3 months ended March 31, 2023, net cash used in investing activities was RMB268.9 million compared to net cash providing by investing activities of RMB170.4 million in the same period of 2022. And for the 3 months ended March 31, 2023, net cash provided by financing activity was RMB59.9 million and this was zero for the same period of 2022. The net cash provided by finance activities [Technical Difficulty]. Now operator, we would like to open the call for Q&A from the audience.

[Operator Instructions] Our first question will come from Philip Shen with ROTH Capital Partners. You may now go ahead.

Hi, everyone. Thanks for taking my questions. First one is on your shipment volumes I think why have volumes been so low as a percentage of production for two quarters in a row? We thought you might ship more than 100% of your production in Q2 because of the inventory – sorry in Q1 because of the inventory that you didn’t ship in the prior quarter. When do you think you will release that inventory? Thanks.

I think, Phil, I think our first quarter still is Chinese New Year, I think January, the sales really is very slow. And also I remember that the downstream the waiver producer, the capacity in the last year, the November – starting November, December, they almost reduced the capacity to the minimum capacity, the maintenance capacity we call maybe 20% or 30%. So, as the capacity quickly come back so we are starting selling actually is February and March and some March shipments to the end of the month, we have to move to second quarter. So basically, so far this quarter today, as of today, the April, we already signed contracts more than 20,000 tons right now. So we see second quarter, the selling volume should be high. So, we expect – we can reduce our inventory by the end of last quarter is 20,000 tons, by the end of this quarter, second quarter to the 5,000 tons, just the regular shipping goods in the week, so basically, this month where sales volume mostly we are shipping to this quarter.

Great. Thank you, Longgen. And I did see your Q2 shipping guidance there I think 59,000 to 61,000 metric tons. So that’s great. Can you talk about the outlook for poly pricing for Q2, Q3 and what – how you are seeing 2024 given the supply demand situation for poly? Thanks.

Basically, I cannot give you the projection of the future. But the basically if you look our Q1, our selling price is $27, we see the selling price especially the way the prices go down. Then if you look at China, the future Q3, Q4, the module selling price, the contract price, bidding price also slowed down. So, basically, what that tell you is if from silicon wafer cell module, the cost by now today is around like RMB0.98. So, your selling module – if Q4 is selling like RMB0.175 divided by valuating text. So the net maybe is around like RMB150. So your gross margin in whole industry is around like RMB0.50 or even $0.45. Compare last year, your selling last year is around $0.74, that’s the – in the module selling price to RMB2 per watt. So basically, we will see second quarter definitely I think of ASP will slightly go down. And how much I cannot tell you, because we see right now the price is stable around RMB180 per kg maybe in the next 2 months was continued slowdown. But I think still the ASP will be I think between the U.S. dollar around $20 to $25. In the third quarter, it all depends on how many the new – I think production the come out, how big the demand pickup. So really, we think Q3, the selling ASP will be stable, maybe as Q2, then Q4, mostly it’s challenging every year. Okay, not only because of holiday western, but also I think China, the traditional I think the bargain between silicone and a waiver. So, basically, Q4 is the challenging quarter. So, maybe I think it will go down to RMB150 even RMB120. So, I cannot tell you the exact figure. And if you look at 2024, as we said, the demand is continuing to grow. Of course, silicon output in China also continued to increase. So, Daqo has differentiated ourselves is to selling more high quality of N-type silicon to differentiate ourselves from other people. So we are hoping our ASP can sell in little higher than our competitors in China. Today, OCI, they are still selling around like $35, $37 per kg. The reason is because I use their silicon outside of China can ship into U.S. market. So, the differentiator is already there, you see that’s the logistic differentiator and the way our efforts – put our efforts is our quality, our cost. So even though we think that 2024 is a challenging year, okay, let’s say the industrial maybe gross margin is around like 5% or even 10%, we hope Daqo can achieve premium 10% to 15% a little more, so we can do 15% to 20%. That’s only I can tell you.

Okay, that’s a lot of color. Thank you, Longgen. You talked about the pricing premium that you think you might be able to get. I think you just talked through that a little bit. But specifically, I think in Q1, I think your ASP was close to $27 per kilogram and the average spot price was closer to $24. Can you talk about the – what your realized premium is due to your quality? Is it about $4 a kilogram or is that difference in the first quarter primarily due to better timing of your poly sales versus spot pricing? Thanks.

Basically, right now N-type and P-type, we already see the difference, I think is there around RMB15 to RMB20 per kg, we think that difference will be enlarged, maybe later, because you see as the type of current capacity continue to come up, then the demand for N-type were more. So basically, we think in the future, our selling price should be if we can sell in 70% of our products is N-type, so basically, I think the price maybe $5 difference, it’s possible, but I can tell you, it’s exactly the future, how the future goes. Really, it’s a lot of challenge.

Yes, okay. That’s great.

But most important – yes, the most important to us is we have a fortress balance sheet. As Ming just said, right now today the banking note receivable plus cash is almost a $5 billion. We are continuing to generate the cash – operating cash and we try to control our CapEx as the market continue going. For example, if the market go into more worst scenario, then Mongolia – Inner Mongolia 5B, we can slowdown CapEx. So we continue to focus our – to I think straighten our balance sheet. That’s the most important I think.

Great. Okay. And given that, this is my last question here, are you planning to do additional buybacks this year beyond the $700 million approved? What are your thoughts on that given the cash that you have? Thanks.

At this moment, I think we just declared $700 million. We already used I think around $85 million. So we only left is $615 million. And dividends I think too slow, the foreign exchange, I think were heated accounts, I think the early of May. So even let’s say we still have like $650 million compared to the capital market, it’s almost 18% of our total shares – outstanding shares. That’s a lot. So, basically, you know that all the repurchase program we have to chance to from renminbi to foreign exchange. So the only right now reliable sources is the dividend declare. So basically, I only can tell you so far only is the – I think today by the end of this year, we still just forecast at $700 million purchase program.

Okay, thank you very much Longgen. I will pass it on.

Thanks, Phil.

Our next question will come from Gary Zhou with Credit Suisse. You may now go ahead.

Hello management. Thanks for taking my question. This is Gary Zhou from Credit Suisse. So, two questions from my side. So firstly, so also to follow-up on the buybacks, so as Longgen has mentioned, basically the rest of the amount is quite a significant amount to proceed. So, just wondering if the company has kind of more thinking less – more color on the timing, how we can proceed, are those attacks or if there is kind of price range that we would think, we would have more – do more kind of share buyback. And secondary quick question, just wondering if management can give us some color on the April kind of polysilicon sales. So, have we kind of start to see our inventory starts going down in April and basically, just one more kind of idea on how confident the management believe that our inventory can we do this quite a lot in the second quarter? Thank you.

I will ask Ming to answer your first question buyback color. I will answer your second question, Ming?

Gary, thank you for your question. So, as Longgen indicated earlier, so we do have our $700 million share repurchase program, of which $85 million has been used, and there is $615 million left. And this program is really through the end of 2023. So, we did just received the dividend distribution from Xinjiang Daqo, has enrolled right now and needs to be transferred offshore. So, in total, this will be approximately RMB4.96 billion or just north of $700 million. So certainly, we do anticipate that this would be the financial source that could be used to fund our share repurchase plan. And I think in terms of timing, there is really no specific timing, except it will be repurchased throughout the year and we will definitely, take opportunity to look at the share price, especially if shre price is really attractive, we would look for opportunities to repurchase that.

Gary, I think I just answered a few questions about the April, I think shipment movement. By the end of first quarter, we have an inventory around 20,000 tons. And in April, I think we sold a contract right now so far today is more than 20,000 tons. So, we see is very quick right now, the rollout. Especially we see a lot of customer come back, more silicon, because today the scenario is different from the history. The history is every month, we sign the contracts, right now, almost every week we sign the contract with clients. Because most of the clients, there is a little worry, you see the fluctuation of the silicon price. But we see right now the price is stable, almost stable between RMB170 to RMB200 per Kg. Hopefully, I think if that price can stick on there or even gradually slowdown. So, basically we are seeing, in May next month, we were selling more. So, our expectation, the guidance, we already gave out, I think we were keeping the end of this quarter the inventory to 5,000 tons, that is in the shipments, we cannot recognize as the revenue hopefully.

Thanks Longgen. This is very clear. I will pass it on. Thank you.

Thank you, Gary.

Our next question will come from Alan Lau with Jefferies. You may now go ahead.

Thanks management for taking my questions. So, we would like to ask from a more long-term perspective show because some of the peers that have been very aggressive of capacity expansion plan, more than 400,000 tons next year. And also some of the peers are having very low cost with VR technology. So, I would like to know your strategy in maintaining your market share or will there be acceleration in capacity expansion or there will be partnership with some of your peers to stabilize the price? Thanks.

Ming?

Okay. Thank you for your question. So, we did see our peers aggressive capacity expansion plan. I think it is subject to for example, their funding from the Asia capital market in terms of the additional capital raising. And also I would say a lot of these projects also more or less will be subject to market conditions. For example, as we indicated, right, the market condition is good. So for example, if demand in the second half there remains strong and polysilicon pricing remain healthy, then we may decide to, for example, we will move our Inner Mongolia Phase 2 project on track and looking at additional capacity plant. But let’s say if polysilicon pricing does become less than attractiveness, certainly we would delay our project expansion and we would not look to accelerate capacity expansions for us. And if that’s the case, we also would think that a lot of the planned projects expansion would slowdown or cancel and naturally, some of the new capacities and that do not reach either quality or cost targets actually might shutdown or close down as the industry has seen in the past, okay. And with regard to costs, we do believe that at least in terms of the Siemens process, type of polysilicon, where we are now more than 99% of our productions model grade, and we are also one of the largest supplier of untied poly in the market within China right now. So, I think we continued to have some of the best quality, and especially for the N-type, I think our products are really accepted by customers. I think our understanding is, even though maybe some manufacturer with different process might have lower costs, we do believe that the product I think once go into N-type products are especially I think in the second half of this year and next year, we do believe that as quality becomes more important, right when polysilicon become more available, we do think that that quality will make a big difference, especially with regard to pricing. And what we are seeing in the market already is that in a lower quality product that does have lower – much lower pricing than the higher quality product. I think in fact what we are seeing in the past month is that us, a lot of the price, the gradual price decline that we saw in the market actually was the result of more of these lower-quality products moving into the market. And they have to offer a lower price to the market, but that is pulling down the overall average pricing of polysilicon in the market currently.

Understood. Thanks a lot Ming. So, another question from my side is, how do you see the cost going forward like, do you think our production costs can get below RMB50 eventually with the optimization and ramping up of new plants?

Okay. So, actually – Alan, so for example, right, so if you compare our Q4 production costs, compared to our Q1 as we indicated, actually it went down almost 6% quarter-over-quarter on RMB basis. So, I think in terms of RMB, our Q4 costs was close to RMB55 per kilogram. And then our Q1 cost is actually already close to RMB51 per kilogram. So, I would say, we do anticipate that once we ramp up our Inner Mongolia facility, right, which has I think in terms of one single site has, in a similar or even better manufacturing efficiency compared to our Xinjiang facility with less people, right, with an updated process. So, we do think that we have very good opportunity to see additional price reductions as this facility ramps up. And I think in terms of our internal planning, we do think that it has very good opportunity to reach the price – the cost targets that you have indicated.

Thanks a lot. That’s very clear. So, I will pass it. Thank you.

Thank you.

Our next question comes from Rajiv Chaudhri with Sunsara Capital. You may now go ahead.

Thank you, good morning and congratulations for producing a strong quarter in very challenging circumstances. I just want to follow-up on the cost question. You are also beginning to produce the raw material internally now, or at least the capacity is being built for that. How will that shape your cost structure in the coming quarters?

I think yes, we – already we are planning to invest in silicon metal in Mongolia, so, by the way, still in the process having to go to the license and the improvement, the energy improvements. So, hopefully right now the schedule is, all of those licenses maybe got by the end of the July. So, basically if we got everything smoothly, then we are starting I think the [indiscernible] silicon metal plant. Hopefully, by the end of this year or the Q1 next year, we can produce silicon metal. I think that will reduce – dramatically reduce our costs maybe. But now I think silicon powder is around like 20,000 tons to 18,000 tons. I think we can go down to 10,000 tons. So, basically I think the cash costs are at least reduced, I think $7 to $8, yes.

Okay. So, $7 to $8, so that would reduce your…

Renminbi per Kg. By now for example, our cash cost right now first quarter is $45. So, if we produce our own I think silicon metal, we can reduce to maybe around RMB37, RMB38.

Got it. Thank you.

Great. Thank you.

[Operator Instructions] Our next question will come from Rocky Lin [ph] with AIIM Investments. You may now go ahead.

Hey. Congratulations for good earnings. My first question is, can you tell me our repurchase program, the pace of our repurchase program? I mean will you report all your $600 million in this year?

Yes. I think the current plan is still to complete the program for the current year. And I think in terms of pace, it should be more or less stretched out over the year. At least that’s the current plan right now.

Okay. Got it. And my second question is, our other competitors, they are expanding their capacities. But I think maybe somehow oversupply, so is there any possible that you will stop your expanding plan for the second phase after – expanding plan of Inner Mongolia?

Okay. So, I will say, overall there is no oversupply of polysilicon in the market today. I think right now, the supply and demand is relatively balanced overall. And there is actually a very healthy demand from the end market. What we are seeing is because, right now we are in April, right, so the peak market demand escalation and timeframe has suddenly reached. Generally in the summer and starts from June really through October, okay. So, we think really Q2, and certainly Q3 demand should be much stronger than Q1. And what we are seeing at least in the very near-term is, as a polysilicon manufacturer we do sell our product to wafer manufacturers. And also wafer manufacturers are running at very high utilization levels, where we are looking at production from industry estimate somewhere in the range of 40 gigawatt to 45 gigawatt per month. But because right now, the overall capacity is actually – production is actually constrained by the availability of high quality or high purity quartz used to make these quartz crucibles. So, in the very near-term that’s limiting their total production and availability or their ability to utilize polysilicon to be made into a wafer. So, we do estimate that the industry current consumption on a monthly basis of polysilicon is somewhere between 100,000 metric tons to 110,000 metric tons. And that’s actually similar to the amount of production of polysilicon currently in the market. So, I think the demand and supply condition is relatively balanced right now. And I think unless we see substantial, let’s say increase in polysilicon production or availability, but without an increase in, say, end market demand, or in wafer production capacity, for example. And then that might have the kind of scenario that you have indicated, but we are not seeing that currently.

Yes. I mean, if the prices contract down, really low like less than maybe less than maybe like [Technical Difficulty] I mean will you stop second time?

Is pricing, let’s see, yes, it goes down to less than $10 per kilogram assumption basis. I think we will slowdown our capacity expansion.

That’s all my questions.

Thank you.

Our next question will come from Shou Zi [ph] with Goldman Sachs. You may now go ahead.

Hi. Thank you for taking my question. Can I ask if you would have any guidance for the production costs for the second quarter? And also will it possible for you to share your current and second quarter expected cash cost level? Thank you.

Okay. Shou, thank you so much for your question. So, this Ming, the CFO. So, I would say that for our Q2 costs, I have been looking at the most recent trends of our raw materials, especially for silicon metal, as well as for electricity. For example, we expect these to be very stable. And so overall, we believe our Q2 cost. So, we are ramping up Inner Mongolia currently. We do think that our Q2 costs should be fairly similar in RMB basis compared to our Q1 cost structure. And actually going to Q3, the costs should decline in the Mongolia start to be close to fully ramp.

But second quarter the cash operation – operation cash, it will be high then, I think then Q1 The reason is because the sales volume is high, is almost a 133% to 141% increase compared to Q1.

Understood. Thank you so much.

Thank you.

Thank you.

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

Thank you everyone again for participating in today’s conference call. Should we have any further questions, please don’t hesitate to contact us. Thank you and bye-bye.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.