Industry Financial Overview and Challenges
The recent financial reports from several leading companies in the photovoltaic (PV) industry, such as Daqo New Energy (688303.SH), GCL-Poly Energy (HK:03800), and Xinte Energy (HK:01799), indicate a general trend of declining net profits in the silicon material segment. Since the beginning of 2023, the PV industry has been undergoing a profound self-adjustment. The cyclical Polysilicon consumption within the industry and the gradual release of new production capacities have led to a drastic shift in the supply and demand dynamics of the PV industry. The price of polysilicon, a key raw material in PV manufacturing, has seen a significant decline, resulting in a decrease in the performance of related enterprises. The question arises: how many polysilicon manufacturers will survive the current challenging period? The industry's previous mantra of "whoever has silicon, has the throne" has now evolved into "cash is king." Despite the overall decline in performance, the leading polysilicon companies have shown varied results. Compared to other segments of the PV industry chain that have already slipped into losses, the top polysilicon companies still maintain a considerable profit margin.
According to the 2023 annual report, Daqo New Energy achieved a revenue of 16.33 billion yuan, a year-on-year decrease of 47.22%; the net profit attributable to the shareholders of the listed company was 5.763 billion yuan, a decline of 69.86% compared to the previous year. Despite the industry's overall downward profitability and the suspension of production in multiple segments, Daqo New Energy managed to exceed expectations with a net profit of 648 million yuan in Q4, achieved during the bottom range of silicon material prices. For the entire year of 2023, the company also realized a high gross margin of 39.97% for high-purity polysilicon, surpassing other enterprises in the industry chain. The company maintained a state of full production and sales, with a sales rate of 101.10%, and achieved a sales volume of 200,000 tons of polysilicon, a year-on-year increase of 50.48%, demonstrating strong competitive strength.
Cost Control and Financial Stability
Xu Xiang, the Vice Chairman of Daqo New Energy, stated during the performance meeting: "Our strategy is to engage in proactive strategic communication, maintain sufficient cash flow, achieve zero inventory in production, and continue to ensure shipments. The future competition will definitely be about cost and quality." Clearly, the competition over polysilicon costs has arrived with the rapid decline in prices. On April 10th, the Silicon Industry Branch released the latest silicon material prices, with n-type ingot silicon prices experiencing another significant drop. The transaction price range is now 58-60 yuan/kg, with an average transaction price of 58.6 yuan/kg, a decrease of 3.30%. From the end of March to the present, p-type ingot silicon has stopped quoting prices until yesterday when the latest price was updated, showing a substantial decrease as well. The transaction price range for p-type mono-crystalline dense material is 48-51 yuan/kg, with an average transaction price of 48.7 yuan/kg, a drop of 18.83% compared to the last quoted price. The price difference between n-type and p-type ingot silicon has narrowed.
It has been reported that currently, second and third-tier enterprises' polysilicon material costs are generally between 50-60 yuan/kg. Under the current pricing conditions, the polysilicon segment is facing widespread losses, with some companies unable to sustain and ceasing production. Some polysilicon enterprises are nearing their cost lines, and a few have even experienced cost inversion.
Xu Xiang commented, "The decline in polysilicon prices previously has led to losses for some companies. Recently, there have been no transactions for p-type monocrystalline rod silicon, and no quotes have been made for a while, leaving the market uncertain about the lowest possible price. Currently, polysilicon enterprises with prices above 65 yuan/kg have no competitive edge. Factories that cannot control costs and improve quality will face shutdowns, and once stopped, it will be difficult to restart. Stronger companies, however, can weather this phase." In contrast to the costs of over 60 yuan/kg that some newly entered polysilicon enterprises face, the first-tier polysilicon enterprises in the industry have managed to keep their material costs around 40 yuan/kg. For instance, Tongwei Co., Ltd. disclosed in its semi-annual report that the company's polysilicon production cost has been reduced to below 40 yuan/kg. Daqo New Energy's annual report indicates that in 2023, the company's total unit production cost, including sales expenses, was 48.70 yuan/kg for the entire year, a decrease of 19.53% compared to the previous year. The cash cost was 41.6 yuan/kg, showing a downward trend on a quarterly basis, and was controlled at 40.68 yuan/kg in the fourth quarter, maintaining a leading position in the industry and demonstrating a significant advantage within the cost-oriented polysilicon segment.
Xu Xiang believes that for manufacturing enterprises, the most crucial aspect is to maintain a long-term and stable operation, aiming for reasonable and steady profits rather than windfall gains. He stated that a solid business philosophy, technological innovation, and cost control enable us to keep a clear mind amidst fierce market competition. Daqo New Energy has successfully weathered several industry downturns and is now embracing new opportunities for development. It is reported that Daqo New Energy has consistently excelled in maintaining a robust business operation. With ample cash on hand and zero short-term and long-term borrowings, the company is well-positioned to invest in research and development, expansion, and innovation without financial constraints. The company's prudent financial management and strategic focus on sustainable growth have been instrumental in its ability to navigate through market fluctuations and capitalize on emerging opportunities. By prioritizing long-term stability over short-term gains, Daqo New Energy has built a strong foundation that not only ensures its own financial health but also contributes to the overall stability and progress of the industry.
In addition to its financial prudence, Daqo New Energy has also demonstrated a commitment to innovation and technological advancement. The company continuously invests in upgrading its production facilities and refining its manufacturing processes, which has resulted in improved efficiency and reduced costs. This, in turn, allows Daqo New Energy to offer competitive pricing and high-quality products to its customers, further solidifying its market position. As the industry continues to evolve and new challenges arise, Daqo New Energy's approach to steady and calculated growth serves as a model for other companies in the sector. With a focus on long-term success and a commitment to innovation, the company is well-equipped to navigate the complexities of the global market and achieve continued prosperity in the years to come.
Technological Innovation and Market Adaptation
Cost control is the first major challenge for polysilicon enterprises, while the supply of high-quality n-type silicon materials represents the second significant hurdle. In 2024, n-type battery component technologies such as TOPCon, HJT, and BC are expected to achieve breakthroughs, completing a technological iteration over the p-type PERC. It is anticipated that these technologies will account for no less than 60-70% of the market share throughout the year, potentially reaching over 85% in the fourth quarter. Against this backdrop, this year is also projected to be the first year when n-type silicon materials will replace p-type silicon materials. Industry insiders predict that n-type silicon materials will make up 70% of the annual production, with p-type materials constituting the remaining 30%. Post-2024, the proportion of n-type silicon materials is expected to remain at no less than 90%. Despite the widespread discussions about overcapacity in the photovoltaic industry, high-quality production capacity remains exceedingly rare, with n-type silicon materials being one such example. It is reported that due to the higher technological barriers involved in producing n-type silicon materials, only a handful of polysilicon enterprises in China, such as Daqo New Energy, Tongwei Co., Ltd., GCL Technology, and Xinte Energy, have mastered the technology for n-type silicon materials. These companies have also been long-standing leaders in the first tier of silicon material providers. Over the past year, Daqo New Energy has enhanced its n-type material output by introducing water-quenching equipment and implementing quality improvement initiatives. According to the annual report, the company sold 53,200 tons of n-type silicon materials in 2023, with n-type materials accounting for 59.11% of sales in December. Currently, Daqo New Energy's Inner Mongolia production line has the capability to produce 100% n-type silicon materials, while the Xinjiang production line's n-type material ratio stands at 60-70%. The company plans to further increase its n-type material production capacity in the future, with the ultimate goal of achieving a complete substitution of n-type materials.
