大全新能源 (DQ) 2020 Q2 法說會逐字稿

Good day, and welcome to the Daqo New Energy Second Quarter 2020 Results Conference Call. (Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Kevin He, Investor Relations. Please go ahead.

Hello, everyone. I'm Kevin He, the Investor Relations of Daqo New Energy. Thank you for joining our conference call today. Daqo New Energy just issued its financial results for the second quarter of 2020, which can be found on our website at www.dqsolar.com. To facilitate today's conference call, we have also prepared a PPT presentation for your reference.

Today, attending the conference call, we have Mr. Longgen Zhang, our Chief Executive Officer; and Mr. Ming Yang, our Chief Financial Officer. The call today will feature an update from Mr. Zhang on market and operations, and then Mr. Yang will discuss the company's financial performance for the second quarter of 2020. After that, we will open the floor to Q&A from the audience.

Before we begin the formal remarks, I would like to remind you that certain statements on today's call, including expected future operational and financial performance and industry growth, are forward-looking statements that are made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statements. Further information regarding these and other risks is included in the reports or documents we have filed with or furnished to the Securities and Exchange Commission. These statements only reflect our current and preliminary view as of today and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties. All information provided in today's call is as of today, and we undertake no duty to update such information, except as required under applicable law. Also during the call, we will occasionally reference monetary amounts in U.S. dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer these translations into U.S. dollars solely for the convenience of the audience.

Without further ado, I now turn the call over to our CEO, Mr. Zhang, please.

Thank you, Kevin. Hello, everyone. Thank you for joining our conference call today. The second quarter of 2020 was a particularly challenging time for the polysilicon industry. Beginning in the later March, the global spread of COVID-19 and related lockdowns, particularly in the U.S., Europe and certain emerging markets resulted in significant disruptions to demand for solar PV products, end-market customers delayed module orders and shipments due to uncertainties about the duration and economic impact of pandemic after pandemic as well as logistically change -- challenges.

This led to short-term market uncertainty and volatility across the entire solar PV industry during the second quarter. As a result, our major wafer customers also delayed orders and product delivery in the month of April, creating a temporary oversupply in the market at the time. This abnormal market environment with its sharp and sudden drop in demand resulted in significant negative impact to polysilicon pricing for the quarter. Fortunately, the impact was temporary and the market began to recover in May with orders and demand normalizing in June, supported by a strong end market in China and abroad.

We are pleased that despite such challenges faced by the industry during the period, Daqo New Energy was able to generate positive net income for the quarter further demonstrating the strength and resilience of our business model and our proven lower cost structure. Towards the end of the second quarter, we began to see very positive momentum in solar PV demand in both domestic and overseas markets, supported by additional capacity expansions by downstream mono-wafer customers. This has translated into meaningful demand improvement in -- for polysilicon, which has driven a significant increase in polysilicon ASPs recently.

From feedback from customers, their order book for the third quarter is full. And the module order volumes look stronger through the year-end. This strong volume demand has led to a shortage within the polysilicon market. Current market ASPs for mono grade polysilicon are approximately $11 to $12 per kg, a significant improvement from approximately $7.5 per kg in the second quarter. Our latest signed customers' orders and contracts reflect this pricing trend. We expect the polysilicon market to be extremely tightly supplied over the coming months as there will only be very limited additional supply of polysilicon coming online over the next 15 months. While the end market demand for PV solar continues to be strong and growing. And in particular, there continue to be significant new additions of mono-wafer production capacity.

In the second quarter, we produced and sold 18,097 metric tons and 18,881 metric tons of polysilicon, respectively. Exceeding our guidance, we conducted annual maintenance for our manufacturing facilities in the second quarter. However, some technology upgrade projects as well as equipment modification has been rescheduled to August due to delayed delivery of some key equipment and long lead time maintenance parts. This will have some impact on the third quarter production volume. As a result, we expect to produce approximately 17,500 metric tons to 18,000 metric tons of polysilicon during the third quarter. We expect to resume to 100% utilization rate in September after the completion of such projects. Our expected annual project volume -- production volume for 2020 remains unchanged at 73,000 metric tons to 75,000 metric tons.

During the quarter, we continued to make strong progress towards quality improvement and cost structure. Approximately 95% of our polysilicon production reached mono-grade quality during the quarter. At the same time, we continue to improve our cost structure, with further reductions in energy and material usage per unit of production. Despite the impact of annual maintenance during the quarter, we achieved a historically lower cash cost of $4.87 per kg. In particular, we are making great progress in optimizing our process and manufacturing parameters for our new high fallout polysilicon reactors, improving in production volume per arm and leading to lower unit energy usage. We expect costs to go even lower in Q4 as we ramp back up to full production level.

We believe the solar PV market has entered a new phase of sustained growth as the grid parity has been achieved in many countries and regions around the world. Solar PV is one of the very few energy resources, which are clean, sustainable and cost-effective even compared with traditional fossil fuel power generation methods. It is playing an increasingly important role in meeting the growing global energy demand and a raising critical environmental issues such as climate change and sustainable development. We will continue our commitment to provide high-quality polysilicon products to better serve the fast-growing demand for solar PV energy.

Let's move in to our outlook and guidance for the company. The company expects to produce approximately 17,500 metric tons to 18,000 metric tons of polysilicon and then sell approximately 7,000 (sic) [17,000] metric tons to 7,500 (sic) [17,500] metric tons of polysilicon to external customers during the third quarter of 2020. For the full year of 2020, the company expects to produce approximately 73,000 metric tons to 75,000 metric tons of polysilicon, inclusive of the impact of the company's annual facility maintenance.

Now I will turn the call over to our CFO, Mr. Yang, who will discuss the company's financial performance for the second quarter of 2020. Please.

Thank you, Longgen, and hello, everyone. Thank you for joining our call today. Now I will discuss our financial performance for the second quarter of 2020.

Revenues were $133.5 million compared to $168.8 million in the first quarter of 2020 and $66 million in the second quarter of 2019. The sequential decrease in revenue was primarily due to lower ASP combined with lower polysilicon sales volume.

Gross profit was $22.7 million compared to $56.6 million in the first quarter of 2020 and $8.6 million in the second quarter of 2019. Gross margin was 17%, compared to 33.5% in the first quarter of 2020 and 13% in the second quarter of 2019. The decrease in gross margin was primarily due to lower average selling prices for the quarter, despite the improvement in production costs.

Selling, general and administrative expenses were $10.1 million, compared to $8.9 million in the first quarter of 2020 and $7.8 million in the second quarter of 2019. SG&A expenses during the quarter include $4 million in non-cash share-based compensation costs related to the company's share incentive plan.

Research and development expenses were $2 million, compared to $1.7 million in the first quarter of 2020 and $1.5 million in the second quarter of 2019. R&D expenses vary from period-to-period and reflect the R&D activities that take place during the quarter. As a result, foregoing income from operations was $10.8 million, compared to $45.8 million in the first quarter of 2020 and the loss of operations from $0.4 million in the second quarter of 2019. Operating margin was 8.1%, compared to 27.1% in the first quarter of 2020.

Interest expense was $6.7 million, compared to $6.3 million in the first quarter of 2020 and $1.9 million in the second quarter of 2020 -- 2019. EBITDA from continuing operations was $26.8 million, compared to $63.1 million in the first quarter of 2020 and $10.2 million in the second quarter of 2019. EBITDA margin was 20% compared to 37.4% in the first quarter of 2020 and 15.5% in the second quarter of 2019.

Net income attributable to Daqo New Energy shareholders was $2.4 million in the second quarter of 2020, compared to net income of $33.2 million in the first quarter of 2020 and net loss of $2.2 million in the second quarter of 2019. Earnings per basic ADS was $0.17 in the second quarter of 2020, compared to earnings per basic ADS of $2.37 in the first quarter of 2020 and loss per basic ADS of $0.16 in the second quarter of 2019.

As of June 30, 2020, the company had $115.8 million in cash and cash equivalents and restricted cash, compared to $120.8 million as of March 31, 2020. As of June 30, 2020, the notes receivable balance was $8.2 million, compared to $4.4 million as of March 31, 2020. And as of June 30, 2020, total bank borrowings were $264.8 million, of which $116.9 million were long-term borrowings, compared to total borrowings of $265.6 million, including $149 million of long-term borrowings as of March 31, 2020. And for the 6 months ended June 30, 2020, net cash provided by operating activities was $47 million, compared to $67.8 million in the same period of 2019.

For the 6 months ended June 30, 2020, net cash used in investing activities was $60.4 million, compared to $145 million in the same period of 2019. The net cash used in investing activities in 2020 and 2019 was primarily related to the capital expenditures of Xinjiang Phase 3B and Phase 4A polysilicon projects. For the 6 months ended June 30, 2020, net cash provided by financing activities was $16.2 million, compared to $61.3 million in the same period of 2019.

And that concludes our prepared remarks.

(Operator Instructions)

The first question today comes from Philip Shen with ROTH Capital Partners.

This is Justin Clare on for Phil today. So I guess first off, you indicated in the release that ASPs that you're seeing right now are $11 to $12 a kilogram compared to $7.50 in Q2. So I was wondering, what are you expecting for your overall polysilicon ASP in Q3? And then could you speak to the demand increase that you're seeing as well as we've seen an issue with supply with one of your competitors given what's going on with that dynamic, what are your expectations for ASPs in Q4? And then how long could ASPs actually be elevated?

Justin, this is Longgen. And starting, I think, July, I think basically, demand of supply because of downstream demand is so high. So I think the wafer capacity also continued to increase especially some company, most of the company want to vertically integrate, including wafer and cell in the module, and to increase the gross margin. Then plus, I think some company, the actions and the supply should, I think, cause the silicon price dramatically, I think, bounce back. So basically, you can see, I think the weekly, I think PV link the price. So for example, last week, it's back to RMB 98 per kg. So we see this situation maybe will continue. And today, another news come out because the flood in Sichuan. So maybe another plant, the major player, the plant will temporarily stop supply. So all these, but that's not a major reason. The major reason, I think, is if you look the next 15 months to 18 months, we do not think any capacity on the silicon side will come in increase. But the demand we see dramatically a lot of money in Xinjiang is to -- as off the grid-parity, and we see the wafer capacity expansion is continue going to increase.

So that's why I think cost supplies come back so quickly. And we, for example, I think for this month, August, because July, definitely, I think the price didn't very high, maybe around RMB 70 to RMB 80 ASP. But this month, we're thinking will be around RMB 90 to RMB 98. So for this quarter, I think I'm not go ahead to give the actual figure, but we see, I think, maybe the silicon price in September will continue to a little over RMB 100. For the -- I think for the fourth quarter, I think, okay, the price maybe or between RMB 85 to RMB 100.

That's really helpful. So then I guess turning to your production. If we just look at your Q3 guidance and then the full year production guidance, it implies Q4 production of, I think, about 18.4000 (sic) [18,400] metric tons at the midpoint. In Q1, you were able to produce 19.8000 (sic) [19,800] metric tons. So just wondering, given the elevated level of pricing, do you have any ability to reach kind of Q1 levels of production in Q4 and to take advantage of that pricing?

Justin, we always try to make our efforts and to produce more products to meet the demand of our downstream clients. But at this moment, because for the forecast, we're always conservative. So basically, to answer your question, we will make efforts. Of course, for this quarter, we've given the guidance, you can see there, right? So basically, we always do that in that manner.

Okay. And then just one last one for me on your cost structure. Q2 cost structure decreased about 3% relative to Q1. This is despite your annual maintenance and the lower production volume in the quarter. So wondering if you could just share a little bit about what enabled you to lower costs in the quarter despite the lower volume. And then could you give kind of an outlook for costs in Q3 and Q4? I know in Q4, you said you expect costs to be lower. So could you provide any more quantification in terms of how much lower?

Okay. Justin, this is Ming. So regarding our costs, I think, certainly, our Q2 cost came out to be lower than we anticipated. So even given the impact of our annual maintenance with the lower production volume, and you can see there's higher contribution from depreciation expense, for example, so we were still able to lower our production costs. And really, a lot of it come from a reduction in our energy usage. So we're making progress in optimizing our process and also improving throughput from our manufacturing facilities. So that in terms of energy usage, we're seeing very promising reductions, and that should continue, I think, throughout the end of the year. And also, a lot of our procurement because of our scale and our efforts.

So for example, a lot of the use of other materials, for example, packaging materials and also silicon powder and the graphites that are being used. All those costs are coming down as well. So that's also providing additional reductions. And the other benefit is coming from the scale of our facility. So I would say Q3, we would look to have probably similar or maybe just slightly lower cost compared to Q2. And certainly, if you look at Q4, we think there's still another probably 3% to 5% type of cost reduction even compared to our Q2 level. So that's what our current outlook is right now.

I just want to give you a little more. The cost of goods sold, I think also partially due to the foreign exchange rate. I think, renminbi, I think appreciation, okay? Partially, it has also come from there. But of course, I think the cost, we will continue to cutting the cost map major from, why from increased efficiency and scalability efficiency. Second is raw materials continue to go down? But you also have to consider like MTS, also maybe price will go up. But we were -- I think the cost -- we will control around, I think, $5.80, maybe $5.60, continue to go down, maybe 2% to 3% by the end of the year.

The next question comes from Gary Zhou with Crédit Suisse.

So I have 3 quick questions. So firstly, can management share with us your view on the polysilicon price outlook for next year? And secondly, so let's say if the polysilicon price stays relatively at a high level. We would be concerned that the -- even the low-tier producers may decide to expand their capacities? And the last question is quickly on -- if the management can share with us any update on the -- on your subsidiaries stockholder listing.

Okay, Gary, to answer your question. First of all, and the poly price for 2020. We believe, okay, in 2020, didn't have any new additional I think, the capacity come in. Meantime, we can see, especially this time, I think the polysilicon price jump back. A lot of companies right now going to adopt a strategic policy of vertical integrated, including the -- I think, for example, like Jinko, one of the U.S. listing company we're now listing in China, Asia. And they originally didn't have any capacity on the wafer segment. They just announced this Monday and going to increase. Actually, they have some, okay. I think frankly speaking, they have like 7 -- 5 to 7 gigawatts wafer in Baotou and Xinjiang. But this time, they're going to I think invest another new project, it's 20 gigawatts wafer capacity in treating in (inaudible).

So you can see -- we can see forecast a lot of companies, for example, maybe Canadian Solar, maybe, I think Trina, all these companies, they will touch the mono-wafer capacity. Meantime, the major player like LONGi, Tongwei, and also Tongwei is going to downstream to the module. Then also Jinko also continue to expansion, I think, on the wafer capacity. So we see by the end of next year, we're calculating maybe around wafer capacity and maybe around like 270 gigawatts. That's estimated need the silicon end of the year, around 800,000 tons. So that's, I think, the demand and supply is totally a lot of gap there. So basically, I cannot tell you the, I think, the exactly polysilicon price. But I think that next year, the polysilicon price, the range should be around RMB 85 to RMB 95. To answer your first question.

Second is, I don't think in this situation right now, any -- we will do any, I think the production -- control any production to control demand -- to control our supply. Is that your question? You said that you may be to reduce our capacity to...

Expansion plan for the second tier, please.

Yes. Sorry, my question is, so let's say if the polysilicon price stays high for longer, so would you be concerned that even the second-tier -- relatively low-tier polysilicon producers may think to kind of further expand their capacities.

Okay. So you get to understand. Okay. As the policy complies come back. Maybe it will stimulate some Tier 2, Tier 3 Company continue to survive. I don't think so. The reason is because, a, is you still have to keep -- continue to keep the cost down. Second is also the quality of the products. That's the most important. Today, the industry, I think average monosilicon may be around 85%. The Tier 2, Tier 3 maybe even lower their percentage. Even price come back there, they -- I don't think they will come back basically on the small producing line, we'll come back to that. But they maybe will stimulate some plans to continue to expansion, I think, on the polysilicon capacity. For example, I think Asian Silicon plants, right? They announced today, they're going to start a new project, I think, 30,000 tons -- metric tons production, I think, to start-up. So basically, I think even today, we know the planning -- Tongwei have 2 plants there. I think (inaudible) is Asian silicon, maybe 30,000 tons on the way. All those capacity, maybe, I think, around 1,000 to 10,000 tons or 100,000 tons, maybe I think will be put into production in 2020 -- 2022. Still, I think, is not enough to meet the demand. Not meet the demand, I think. Then to answer your third question, that's why I think we are planning to do -- to put our Xinjiang -- Xinjiang New Energy as a sum of our listing company of U.S., the Daqo New Energy listed in New York Stock Exchange, go to China stock market, everything right now is on schedule. We believe I think in today, stock market valuation, we can -- if we can successfully as a planning to raise the money. We think, yes, we were starting planning and study to also at certain time, and we will consider to expanding our capacity.

Gary, I answer your question?

Next question comes from Alan Hon with JPMorgan.

This is Alan from JPMorgan. My first question is, I mean, with the recent price hike on the polysilicon side and also the price side along the silicon value chain into module. How is the feedback product by the ultimate customers? I mean, is there any hurdle in terms of like downstream PV demand because of the price hike?

Alan, basically, I think as the consolidation continues going on, yes, in some segments right now, there are some big players there. For example, like wafer segment, I think LONGi, Jinko and Tongwei, even Xinjiang and they are all a big player right now, okay? In the module segment, I think you can see that original like Jinko, Trina, Canadian Solar, even LONGi also is a bigger player. Because of each player forecast different segments. And they may be -- because we hope in whole industry should we have industry average gross margin to make this industry very healthy to continue to expansion, to meet the demand of the downstream client needs. So recently, I think the fighting between -- I think maybe between wafer sale and module. Yes, today, I think the wafer price continue to increase and squeeze the module, I think, gross margin. I don't think right now today, like LONGi M6 selling price, RMB 3.25 per piece right now can make the module, I think, assembling a player make money.

So yes, we see module price also continued maybe back increase. Also, we see some projects renegotiation, even through the -- I think the history, they've already done the bidding system, especially in China. But I don't think that will stop the -- I think the downstream installation and all the projects, maybe will delay some projects. I think that problem is temporary. Finally, I think the player will come down. I think to get some certain balance and to stimulate, I think, the demand. So I think the problem will come down in Q4.

Let me add a little bit to that. So I think if you look at the real downstream market, especially on the project side. So because of the current money printing a super low interest rate or even negative rates and where money is so available right now. So a project that maybe used to require 8% to 10% project IRR or double-digit equity IRR now is probably happy with mid- to high single-digit type of return to the project. And those projects will still move forward. So that -- I think some of the projects really are even not price sensitive. So I think you actually have a significant amount of demand in the market at a lower yield. That's required for these projects to happen. I think that's something that people may not have looked at. And if you look at what's happening in California right now, with the power outage and with the record here. I mean, people are now probably likely want to put in place solar system, even with storage, right away, without regard to the cost of the system because you're now talking about heat with no AC. I mean that's not something that's even sustainable. So I think there are definitely markets that would open up, especially, I think, with the future trends towards climate change as well.

I think, Alan, I think because of the gross margin right now, in each segment is different. Today, especially, I think wafer segments, mono-wafer segments with high gross margin and module with lower gross margin. So we see some advantage for the bigger wafer player, if they also have some module business, I think they maybe can continue to reticulate into module segments. But meantime, those module player, they also can be reversed back very integrated to touch the wafer segment. That's just I said, I see like Tiangong. They just announced, I think, 20 gigawatts wafer, I think, expansion. We will see a lot of companies like, I think Canadian Solar, Trina and other company, I think even Jinko, continued expansion in the wafer segment. So at that time, as the wafer sale and module settlements continue to vertically integrate it. I don't think the fighting will continue like this way. But the situation, I just said, within the next 15 months to 18 months, we didn't see any polysilicon production will come in. Even, let's say, after 15 months, 18 months, I think Tongwei 2 plants plus Asian Silicon 1 plant production line come in, still cannot meet the demand. So we -- I think also -- that's why we want to go to market as soon as possible. We're working hard and to certain time, I think we would announce what we did. So we definitely will -- in the future, we also will schedule -- continue our expansion plan. .

This is clear. And I have another question. This is related to what happened along the industry today. Just like from a technical side of things, it's like we have to shut down poly plant for whatever reason. Even with the damage, I understand that it may take some time to ramp up ramp back up to production to 100% and also to have the high mono output. So generally speaking, how long does it take for the plant -- for existing plan to ramp back up?

Okay. I think we -- I think I just only can talk to myself, I think Daqo, okay. I can't comment on other plants. Other plants, for example, 1 of the plants in Xinjiang U.S. They have, I think, accidents, hopeful they can back as soon as possible. I think they also I think announced and some news they announced, they think it will come back 2 to 3 months. I'm not going to judgment to that, okay? But if you look at our guidance, it's very pretty sure. This quarter, our production, I think, is 17,500 to 18,000 metric tons. So for example, this month, we are around 5,400 metric tons. Even though we are in maintenance and we install -- upgrade some equipment. So we still make efforts. So we think in September, we have full capacity of running. So we're very confident. And to -- I think to back to full capacity running because we think the market demand is so high. So that's what I say. I even -- what I think even today, like Tongwei just announced, I think, Leshan, one of the plant because of flood. I don't think that will take time, maybe 2 weeks, 1 week, will come back.

The next question comes from Colin Yang with China Securities.

Colin from Daiwa. I've got 2 questions. The first one is similar to Alan's questions. As you may know, was already stocked to renegotiating the module price for already signed competitive orders. So as we come to the percentage percent over 50% over the present months, but module sales only up by 5%. So we worry about, we're going to see an extremely weak 4Q demand in China. Number was to stock to see a severe drop in 2020. So your installation in China affected by the rising module price talking about polysilicon price?

I think of the -- because of the pandemic situation in China in the first quarter, the second quarter, globally pandemic caused the downstream especially the downstream business demand is so weak. So that's why in the second quarter, in each segment, price reduced. So very sharply, even let's say, look at the polysilicon price, really, it's not too much company make a profit. We are because the quality, the monosilicon almost more than 95%. And also the cost advantage, scalability. So we have some advantage on the gross margin, maybe 10% to 15% better than the industrial average. So that's why we make a profit. But other people, even, let's say, module sale always go down, right? You can see even wafer also go down. But wafer historically as a mono-wafer, they have -- with the high gross margin. So just like you said, because of starting end of July, the polysilicon price come back then because wafer price increased, sale price increased and module price definitely slightly increased. That's okay. The market still can absorb that slightly increased. If the module price dramatically increase, then will cost a lot of product. One is maybe delayed projects. Secondly is also will reduce the demand of the module. So I don't think that will happen because in the history, it's not happened. Because the module price go down to certain level, never come back in the history, okay? But this time, it's happened because why? Because the module price is too lower, the grid parity is there.

Look at China, all the projects right now, the bidding, the government subsidy is only like $0.03, $0.04 per kWh. The project return is still higher. So as the interest rates continue to go down, I don't think -- some projects I still think they can absorb a little higher module price. Thinking about that, today, silicon cost on a module only around 15%. And the inflation of the station, solid station, only 7%. So I don't think right now, silicon is a major cost right now for the module for the downstream solar projects, I think glass, all these other materials maybe glass right now is #1 cost for the module. So I think the market will tell you demand and supply fire will bounce back. I don't think the market will be hurt. Temporary, yes, but long term, I think the market will come back. I don't think even some unreasonable, irrational price of cell or even wafer can be sustainable.

So my second question is about the sustainable gross margin we are expecting because, as you mentioned, is going to be no effective capacity addition over the next 15 months. So based on expectation of RMB 85 to RMB 95 per segment polysilicon, the gross margin in matter will be outpacing 50%. So the recent 50% is going to be a sustainable gross margin for polysilicon? And do you have any updates for the capacity expansion plan?

Okay. For the polysilicon, I think the segment -- polysilicon is the -- I think with high-technology and heavy capital investments and the long-term investment cycle. And for example, any new entry come in, you need to take at least maybe, I think, right now, the 1-year to constructing the project. So it's very tough. Even, let's say, like a new horizon, right? They have the money. They invest polysilicon, but still in not successfully. So what we believe, I think, because the chemistry industry, I think this industry, the average gross margin should be around 30% -- 25% to 30%. But if the good player in the industry should be around 30% to 35%. So that is, I think, is one of, I think, the high-quality, low-cost player in China. So we believe next year, our gross margin should be around 35% to 45%.

The next question comes from Tony Fei with BOCI.

I actually have 2 questions. Firstly, regarding your ASP side. So in Q3, we see the poly price actually increased in a very fast fashion. So can you reduce -- adjust your sales price, your actual delivery prices to your wafer clients? Is it biweekly, or half biweekly basis? That's the first question. Second, regarding your CapEx in Q3, so given your ongoing maintenance. So what kind of CapEx are we expecting in the third quarter?

Okay. I answer the first question. I'll let Ming to answer the CapEx next question, okay? I think for the ASP, okay, original practice, practically, right now, what we're doing is we based the PV link. Usually, we -- every month on the 20s, we negotiation with our clients to determine next month, deliver how much base market price will make the price, okay? But starting, I think the July, because the price go back so quickly. So we right now almost, I think, 2 week to make, to sign a contract. Some clients, even 1 week to sign clients, to update the price. But that's just like because the price change so quickly, okay? We almost in a 1 week, 2-week to sign the contract. But I think when the price become more stable, we go back to 1-month to sign contract with 1 of major clients. But those clients may be in a different time. But I think all major clients, as you can see, we signed long-term contracts with LONGi, Jinko, as you can see. So it's very stable. And as soon as we sign a contract, we cannot -- usually we cannot easily change the price. So that's why in July, our ASP is not -- basically is not fall a little lag behind the market. But in August, definitely, I think we catch the market. So August and September, we will almost match the new price. So we think this quarter, the ASP were higher. And we give you current price is around $11 to $12 per kg. And we -- I think September, the price may be even a little higher. Maybe go to $13, $14, it's just, I think, should temporary time. And in the fourth quarter, definitely will come back to normal. So I would believe I think the price should be around RMB 85 to RMB 95 is reasonable.

Okay, Tony. And regarding your question for CapEx, so new CapEx, we will spend on technology upgrade and new equipment installation is only about $5 million for Q3. But total payments will be about $25 million for capital investments, and this would include about $20 million of payments related to our project Phase 4A based on our payment schedule.

The next question comes from Jun Liu with Citi.

I think most of the question has been asked by the previous analysts. So I only have 2 questions. The first one is that do you -- can you guys give us some color on the -- maybe the detailed timetable to see our resume production in Xinjiang, our order line because they have an investigation team to come to Xinjiang to check the safety. So I'm not sure whether you can give us maybe update or time line on that. And the second is that, considering the current price, polysilicon price is very high. So do we think about the -- I know we didn't have the reply of the capacity expansion yet. But do we think about to maybe not just expand our capacity in Xinjiang. We will be seeking some other place or some other provinces to expand our capacity. That's all my questions.

Okay. I think to answer your first question, I think right now, currently, our older plant, there are 4 products in line. And 3 production line right now is working -- it is right now in the production. Only 1 production line, that's a third product line, any capacity is 5,000 tons. There because the lack of small incident plus, I think the equipment is lagged behind. So we are planning -- put it back to production by end of this month -- before end of this month. So that's why we give guidance for this quarter is 17,500 metric tons to 18,000 metric tons. And this month, we think we can manufacturing 5,400 tons. To answer your first question.

Second question is that matter the price high temporary. We consider evaluating the whole picture for the next 3 to 5 years. We believe the solar industry has reached grid parity. We think the solar industrial will continue to, I think, if -- without the pandemic without the trade war, I think the solar industry should dramatically, I think, continue to increase in the downstream, the market. So that's why we are evaluating every day, okay? For example, in Xinjiang, we still -- we already approved 4B. That's the 35,000 ton projects. And it's feasible, it's approved. Then also, we are looking at other opportunities. I think maybe in line with Trina, near one of our bigger player, 2 bigger players right now, the wafer capacity there. We also do another study. Then also the opportunities and maybe Mongolia, I think also is the -- 1 of the large wafer production center there. So yes, we are doing a study right now, and it's possible we are, in the future, if we decide to expansion our capacity even abroad, not in China, possible somewhere abroad. Because we consider the U.S. market in the future, the anti-dumping maybe including the silicon manufacturing is not -- cannot be in China. So that's why we do all the study right now. In the meantime, we are making efforts right now, just letting you know to led our Xinjiang plant go to Asia market, stock market as soon as possible to raise more money and to do that. So to a certain time, when the -- all this is mature, we will announce that.

I have actually 2 follow-up questions. The first is that, yes, you have explained, we will back to the production by end of this month. So may I ask if we have to get some approval from local government to get the production? Or we can just resume our production by our own schedule? And second question, as you have mentioned, we -- the solar industry has reached the grid parity now. So the growth will be very fast. So do we have some kind of strategy or long-term planning that we should have certain market share in the polysilicon, given we are the lower cost player in this industry?

Okay. To the first question, because of another plant in Xinjiang, have the accident. So the local government actually asking us to do all the plants, the full production line, even asking third-party to come in to evaluating the safety. And the government is already approved all the production meet safety production criteria, allow us to start -- to continue running production, okay? It's already gotten approved. The only, the third production line, we're not ready because we still have to upgrade the equipment, the parts. So that's why we are working on that. Today, actually, new parts have already come to the plant. So we think we will finish by the 25th of this month. So we think we're back in full capacity running by the end of this month. So that's the first question, okay.

Second question, yes, every company have their strategic, I think, a strategy. To us, we continue -- we think our -- we have to focus our experts on the silicon side -- polysilicon side. We have good quality, we have a lower cost, and we have good people, okay? And even we want to be -- to take advantage of stock market with a high valuation to get IPO proceeds to expansion our new plans. So yes, we're working very hard of course, we also have some planning there. If you look at our first quarter market share, we think we are around 15%. And we think we will continue the market share at least about 15%, even reach a little higher. But we're not to say, we don't want to see. We are #1. We are the largest -- we don't want to do that promise and forecast. We do whatever we can, and we focus our experts and we focus our planning, okay? We will announce soon, okay, our strategic plan.

The next question comes from Jeffrey Campbell with Tuohy Brothers.

My first one was, I didn't notice any announcement of any material headcount reductions during second quarter? And if not, is this due to the high automation in Daqo processes?

Yes. So there's no headcount reduction at all for us. I think we just had maintenance, but everybody's -- we've been fully employed throughout this time. Because Jeffrey, you can look our production. Actually, in the second quarter, we actually -- because we have already scheduled annual maintenance but because of the equipment is not coming on time. So we postponed our 2 production line to the August to maintenance. So basically, Q2, our output is still very high. You look at that. Then even Q3, right now, we've given guidance also around 17,500 tons to 18,000 tons, okay? We're always very conservative. So I think with that output, we don't think we want to cut headcount, actually we have increased. Because we have to save employee tenants for our future expansion.

Right. No. I asked that because that's much of the rest of the industry. It was really having to reduce headcount to maintain costs, but you guys don't seem to have needed to do that. Earlier in the call, you mentioned variability in the ASP pricing. I was just wondering, can you maybe talk about on a percentage basis, that portion of your sales that are longer-term contracts, such as those with LONGi and Jinko versus more market-sensitive contracts that adjust frequently?

Okay. Basically right now, the contracts that we with LONGi and Jinko is almost approximately accounts as right now the content capacity around 70% to 75%. We actually have little room right now open for the other clients. And maybe we will sign another 1 or 2 long-term contracts for the future, okay? Just to cover another 3 years. And also to consider -- that's why we almost right now contract all -- most of our capacity right now. But you have to consider everything is moving. We maybe in the future, we're extension our capacity. So that's why we're doing that. So the long-term contract with LONGi and Jinko basically is based on fixed under quantity is not the price. The price fell based on the market price. And the only thing is we collect the deposits to lock the quantity and keep the relationship with our strategic customers.

Okay. Great. And finally, as you talk about this 15 to 18-month period where you see significant demand growth and very low supply growth. Do you have any sense of the extent to which this is being driven by residential markets versus demand for utility type projects?

If you look at China, I think China the majority in the history, I think, is SOE, the company, working on the farm projects, I think, the distributed project actually is not too much. But as the -- I think in the last -- second half of last year, I think because of grid parity right now, China distributed projects right now, more and more because those projects without any subsidized and basically the project itself and can reach profitable and attractive investments to invest money. So for example, myself also invested in Beijing, I think 7 around, I think, 10 megawatts because we think it's very profitable. The installments, the cost for per watt used to on the roof only causes like RMB 3.2 per watt. You can generate every year, almost 1.6 kWh. Even let's say, you sell into the grid, $0.37, it's very, very profitable.

So that's why we see in China, the distributed rooftop, the percentage continues to go up. Even I think globally, especially, I think in the U.S., the market -- potential market is so big. The U.S., the problem right now is, I think, in trade war. The trade war -- I think as the anti-dumping and the trade war actually add the module price in the final consumers then plus, the labor cost is higher. But I think Solar City right now, I think you use, I think, the standard package, try to cut in the labor cost. So they -- I think I was told they, let's say, the rooftop, they have standard products. Just put on there only 3 hours. So I think those, I think, standard products, I think, in China, we're also working on that. For example, the roof, 5,000 megawatt -- 5,000 watts, 8,000 watts, all the standard, just coming, put on with 3 hours, 4 hours. So that way to continue to reduce the cost in a BOSC. I think that's, I think, the potential in the future. Definitely, I think the distributed rooftop, the segments will continue to increase the percentage.

Okay. And I'll just follow-up real quickly on that. So it sounds like -- because earlier, you said that you're considering the possibility of building some capacity closer to the United States. So based on what you just said, is it fair to say that the distributed -- the potential for distributed growth in the United States is a factor that's driving the possibility of getting that capacity closer to the United States. Is that fair?

Yes. Maybe it's not exactly U.S. -- United States, but yes, because we valuation a lot of locations. And because of pandemic situation. Otherwise, we will speed up these, I think, projects. But definitely, yes, we are working on that to -- in a certain time, we will announce it.

This concludes our question-and-answer session. I would now like to turn the conference back over to Kevin He for any closing remarks.

Yes. Thank you, everyone, again for participating in today's conference call. Should you have any further questions, please don't hesitate to contact us. Thank you, and bye-bye.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.