Daqo Blames Low Polysilicon ASPs For Q2 2024 Negative EBITDA

With the polysilicon ASPs falling below production costs in Q2 2024, the world’s leading supplier of solar-grade polysilicon, Daqo New Energy suffered a ‘significant’ negative impact on its income and cost of revenue. 

Due to this reason, its inventory market value fell below book value for which it had to incur an impairment expense of $108 million. 

It sold 64,961 MT polysilicon in Q2 2024 for an average total production cost of $6.19/kg, which reduced from $6.37/kg. The ASP was down at $5.12/kg, compared to $7.66/kg in the previous quarter.

“During the second quarter, solar market sentiment was depressed and customers showed little interest in purchasing products. As a result, polysilicon prices kept setting new lows, below production costs and even below cash costs. Polysilicon prices plummeted from slightly above RMB60/kg on average in early April to RMB40-55/kg in late April, and further dropped below RMB40/kg near the end of May through the end of June,” said Daqo CEO Xiang Xu. “Overall, sales pressure intensified as industry-wide polysilicon inventory increased from approximately 18-20 days of production in early April to more than a month of production by the end of June.”  

With inventory accumulating, industry players are increasingly opting for maintenance and production cuts, according to Daqo.  

The management shared that China’s total polysilicon production volume dropped about 16% from approximately 192,000 MT/month in April to approximately 162,000 MT in June. However, the supply of polysilicon still exceeded customer demand for wafers, which dropped to around 50 GW in June due to lower utilization rates. 

Although there were further industry polysilicon production cuts in July, an uptick in demand from downstream manufacturers will be needed to drive inventory reduction and price recovery, added Xu. 

The company’s revenues of $219.9 million for the period declined by over 47% quarter-over-quarter (QoQ) and more than 65% year-over-year (YoY). Lower sales volume contributed to this decline. 

EBITDA was a negative $144.9 million, compared to a positive $76.9 million in Q1 2024 and $230 million in Q2 2023. It reported a gross loss of $159.2 million during the reporting quarter, compared to a gross profit of $72.1 million in the previous quarter and $258.9 million in Q2/2023 (see Low Polysilicon Prices Impact Daqo’s Q2/2023 Results). 

Compared to the $15.5 million net income in the previous quarter, Daqo suffered a net loss of $119.8 million in Q2 2024.  

Manufacturing  

At the end of June 2024, Daqo’s total annual nameplate polysilicon production capacity was 205,000 MT. It started initial production at its Inner Mongolia 100,000 MT phase 5B polysilicon project in Q2 2024, which contributed close to 12% of the company’s total production volume. The overall n-type product mix reached 73% during the quarter. By the end of 2025, the company believes it is on track to achieve a 100% switch to n-type. 

Looking forward 

The management does not see the market conditions improving for the Chinese solar PV industry anytime soon; hence, it expects this year to be a challenging one.  

“This year will be challenging for China's solar PV industry, as solar manufacturers along the value chain experience weak margins driven by oversupply, excessive inventory, and lower prices. At this point, we may have reached a cyclical bottom but do not yet see clear signs of potential improvement,” explained Xu. “We believe that the current situation of selling below cash cost is unsustainable and that many solar firms are facing significant cash flow challenges leading to delays in loan repayment and order deliveries. Therefore, we are likely to see market consolidation with higher-cost manufacturers gradually phasing out capacity and exiting the business.” 

Citing current market conditions and pricing, Daqo has adjusted its target production utilization rate for Q3 2024. It guides for Q3 polysilicon production volume of 43,000 MT to 46,000 MT to support pricing and reduce cash burn. 

For full-year 2024, the revised guidance is for a production volume of 210,000 MT to 220,000 MT, down from the range of 280,000 MT to 300,000 MT offered previously (see Daqo New Energy’s Q1/2024 Net Income Narrows Down).  

Nonetheless, analysts at Roth MKM believe the company’s strong liquidity position with $2.5 billion should come in handy in these challenging times.