It is no surprise that the second quarter of 2016 was a good one for the Chinese manufacturer of high-grade polysilicon Daqo New Energy, as domestic demand surged, resulting in higher sales at higher prices. And it wasnt just the companys financial results for Daqo to celebrate, as it also received approval for a new credit line during the quarter, which will be used to increase the companys manufacturing capacity.
During Q2, Daqo recorded 2,931 MT of external sales of its polysilicon, up from 2,905 MT during Q1, and sales of 25 million pieces of its solar wafers, up from 22.1 million pieces in Q1. However, it was the 25% rise in the average selling price of its polysilicon from $13.72 per kg in Q1 to $17.24 per kg in Q2 that saw the companys revenue shoot up 23.1% to $71 million for the quarter, from $57.7 million in Q1. This was also the major contributor in an incredible 138.6% rise in the companys net income for the quarter, up to $19.8 million after posting $8.3 million in Q1.
In the second quarter of 2016, the demand for polysilicon was very strong, commented Daqo CEO Dr. Gongda Yao. We saw substantial increase in polysilicon orders and shipments across a wide range of customers. With a tight supply environment, market ASPs improved meaningfully, from §13.72 per kg in the first quarter to $17.24 per kg in the second quarter of 2016.
To compound Daqos financial success during the second quarter of the year, it was even able to reduce the production cost of its polysilicon from $9.65 per kg in Q1 to $9.43 per kg in Q2, ensuring a very positive EBITDA and gross margin. In fact, Daqo saw its EBITDA experience a 58.8% sequential increase from $21.9 million in Q1 to $34.7 million in Q2, with its gross margin rising to 43.9% after sitting at 32.6% in Q1.
With our continuous effort on cost reduction, we reached our lowest ever cost structure with $9.43 per kg in total cost and $7.42 per kilo in cash cost, said Yao. Our current cost structure is 27% below Q2 2015 level, which at the time was already one of the lowest in the world.
One of the most meaningful events of the quarter was the approval of a RMB500 million (US$76 million) credit line from Chongqing Rural Commercial Bank, which the company will use, among other things, to increase its annual polysilicon manufacturing capacity from 12,150 MT to 18,000 MT. However, looking to Q3 of 2016, the company announced that it will most likely conduct its annual maintenance, which should take 15 to 20 days. Therefore, it predicts lower sales of between 2,550 MT to 2,600MT of polysilicon during the quarter.
Entering into the third quarter, we continue to see strong demand and robust orders from customers, continued Yao. The market for polysilicon within China remains tight supplied, with low levels of inventory across domestic suppliers and customer. Based on current market demand trends, we are seeing a stable pricing environment, and we anticipate Q3 ASP to be similar to Q2 levels.