Daqo New Energy’s Q1/2024 Net Income Narrows Down

• Daqo New Energy's Q1/2024 revenues suffered due to increased inventories and lower ASPs 
• It achieved an average total production cost of $6.37/kg compared to $6.50/kg in Q4/2023 
• The management expects the overcapacity issue to clear up as the current problems force many players to exit the market 

Chinese polysilicon manufacturer Daqo New Energy saw a decline in its Q1/2024 revenues and net income due to lower average selling price (ASP), and points to the significant pressure on the wafer sector from accumulated inventories and negative margins. 

Daqo says it had approximately 2 weeks of production in its inventory at the end of the quarter. 

Polysilicon prices during the start of 2024 ranged between RMB 65/kg and RMB 70/kg for n-type and within RMB 55/kg to RMB 60/kg for p-type. However, these dropped to between RMB 47/kg and RMB 54/kg by late April for tier I producers.  

"At this level, we believe the entire solar value chain, including polysilicon, is likely to be loss-making in general and that a large number of polysilicon producers are currently unprofitable," explained Daqo's CEO Xiang Xu. "The solar industry has gone through multiple cycles in the past and, based on our previous experience, we believe that the current low prices and market downturn will eventually result in a healthier market, as poor profitability and losses, as well as cash burn, will lead to many market players exiting the business with some possible bankruptcies." 

According to Xu, this will solve the overcapacity issue and lead to capacity rationalization. The industry will then return to normal profitability and better margins as demand for renewable energy grows. 

Philip Shen of Roth MKM opines, "We believe Q2 could be the bottom with average April prices of ~$6.70/kg, but we cut our estimates as we see a muted recovery off the trough in H2'24. We expect DQ to focus on conserving cash as it navigates this challenging environment."

Daqo produced 62,278 metric tons (MT) of polysilicon in Q1/2024, reaching an average total production cost of $6.37/kg compared to $6.50/kg in the previous quarter. 

It sold 53,987 MT for an ASP of $7.66/kg vis-à-vis $7.97/kg in Q4/2023 and $27.83/kg in Q1/2023. 

Its revenues were a total of $415.3 million, reflecting a sequential drop of over 14%, while its gross profit of $72.1 million dropped from $87.2 million over the same period. Net income narrowed to $15.5 million from $53.3 million. 

During Q2/2024, Daqo targets to produce between 60,000 MT and 63,000 MT of polysilicon as it targets to maintain full production. 

It plans to construct and begin initial production of the company's new inner Mongolia phase 5B facility in Q2/2024 and ramp-up to full production level by Q3/2024-end. Hence, the management guides for approximately 280,000 MT to 300,000 MT for the full year 2024, an improvement of 40% to 50% over the previous year, including more of n-type in the product mix.