Daqo posts drop in revenue after volatile quarter for polysilicon

The rollercoaster ride of the polysilicon market continued into the third quarter of 2016, as costs, prices and demand continues to fluctuate alongside the solar market. This was reflected in Daqo’s third quarterly figures for 2016, which showed sequential drops, but, importantly, saw yearly increases right across the board.

With a number of polysilicon manufacturers hedging bets on a growing market, Daqo is one of the company’s that has expanded its production capacity over the last couple of years, which is why it is unsurprising that its production volume continued to increase, with 3,636 MT produced in Q3, up from 3,570 MT in Q2. However, despite the increase in production, the Chinese company’s sales volume was down sequentially to 2,838 MT in Q3, from 2,931 MT in Q2. The company’s wafer sales also suffered, falling to 14.4 million pieces in the third quarter, from 25 million pieces in the second.

With average selling prices (ASP) of polysilicon also down, this hurt the company’s revenues. In fact, Daqo’s ASP throughout the quarter was down to USD 15.64 per kg, from USD 17.24 per kg in Q2. Therefore, revenues dropped from USD 71 million that it posted in the second quarter of the year, to USD 54.3 million in the third.

“Our third quarter ASP was USD 15.64 per kg, compared to second quarter ASP of USD 17.24,” said Daqo CEO Gongda Yao. “As a result, several polysilicon manufacturers, both within China and abroad, partially shut down their capabilities due to weak polysilicon pricing. The resulting reduction in polysilicon supply has helped to stabilize the market and paved the way for price recovery.”

Importantly, Daqo was also able to reduce its own production cost of polysilicon from USD 9.43 per kg in the second quarter to USD 8.66 per kg in Q3, which meant that the company’s EBITA and gross margin did not suffer too heavily. Even so, it still experienced sequential drops in both, posting a non-GAAP gross margin of 39.9% and EBITAA of USD 25 million in Q2, down from 48.9% and USD 34.7 million, respectively, in Q2.

“During the third quarter of 2016, we successfully set new records again in terms of polysilicon production volume and costs,” continued Yao. “Through technical and process improvements, we made significant progress in reducing our production cost even further, achieving our lowest ever cost structure with USD 8.66 per kg in total cost and USD 6.88 per kg in cash cost.”

Looking forward, Daqo has forecasted further drops in its own sales volume, which is certain to impact on its revenues for the final quarter of 2016. The company is predicting sales of approximately 2,200 MT to 2,300 MT of polysilicon during the fourth quarter, but is expecting its wafer sales to experience a sequential growth up to 20 million to 21 million pieces.

However, the fall in polysilicon sales will be due to planned maintenance work on one of its production facilities in October, not the solar market. And, in fact, the company is very optimistic that the market has stabilized, and is ready to deliver big figures for next year.

“The solar market began to recover in early October, with strong customer demand and order momentum,” added Yao. “Due to limited channel inventory, polysilicon pricing has recovered particularly well, with increases in orders from our broad-based customers. Wafer pricing also recovered significantly. During early November, we also saw downstream product pricing recovering meaningfully, including pricing for solar cells and solar modules.”