DAQO New Energy Q2 2025 Earnings Report

DAQO New Energy EPS Results

• Actual EPS: -$1.14
• Consensus EPS: -$1.16
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

DAQO New Energy Revenue Results

• Actual Revenue: $75.19 million
• Expected Revenue: $140.54 million
• Beat/Miss: Missed by -$65.35 million
• YoY Revenue Growth: N/A

DAQO New Energy Announcement Details

• Quarter: Q2 2025
• Date: 8/26/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, August 26, 2025
• Conference Call Time: 8:00AM ET

DAQO New Energy (NYSE:DQ) operates as a leading manufacturer of high-purity polysilicon and monocrystalline silicon wafers for the global solar photovoltaic industry. The company focuses on serving module makers and integrated solar producers with critical upstream materials, applying proprietary technologies and optimized processes to achieve high product purity and consistently low production costs. Its core offerings include solar-grade polysilicon—used in the ingot casting and wafer slicing stages—and premium mono-silicon wafers, which are a key input for high-efficiency solar cell production.

Founded in the late 2000s and listed on the New York Stock Exchange in 2010, DAQO New Energy established its first polysilicon facility in China’s Xinjiang Uygur Autonomous Region. Over time, the company expanded its capacity through additional production lines and strategic investments, while adopting advanced automation and environmental controls to enhance yield and minimize energy consumption. In recent years, DAQO has added wafer manufacturing capabilities via in-house production plants and selective partnerships, broadening its product portfolio to address rising demand for larger-diameter wafers.

DAQO New Energy serves a diversified customer base across Asia, Europe, North America and other emerging markets, supporting both conventional crystalline silicon module makers and next-generation cell developers. The company’s global footprint includes R&D centers and sales offices in key solar hubs, enabling close collaboration with technology partners and end users. This worldwide reach allows DAQO to respond rapidly to shifting market requirements and evolving quality standards.

Governed by a management team with extensive experience in specialty chemicals and photovoltaic materials, DAQO New Energy places strong emphasis on innovation, operational efficiency and environmental stewardship. The company continually invests in research and development to reduce production costs and improve product performance, positioning itself as a cost-effective and reliable supplier within the rapidly expanding solar energy supply chain.

DAQO New Energy Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong liquidity position: As of June 30, 2025, the company held US$599 M in cash, US$490 M in short-term investments and US$994 M in fixed-term deposits, with no financial debt, giving it ample financial resilience.
• Negative Sentiment: Second-quarter revenue fell to US$75.2 M from US$123.9 M a year ago, generating an operating loss of US$115 M and a net loss of US$76.5 M, with a –108% gross margin.
• Negative Sentiment: To avoid selling below cash cost, sales volume was cut to 18,126 MT (from 28,008 MT in Q1), resulting in idle-facility costs of ~US$1.30/kg and under‐utilization of capacity.
• Positive Sentiment: Cost efficiencies improved: Q2 cash cost declined 4% sequentially to US$5.12/kg (US$7.26/kg including depreciation), and full-year 2025 production is guided at 110,000–130,000 MT.
• Positive Sentiment: Policy support spurred price rebound: Government measures to curb irrational low-price competition helped July polysilicon futures surge from RMB30/kg to a five-year high of RMB55/kg, indicating an industry recovery.

Presentation

[Operator]

Good day and welcome to the DAACO New Energy Second Quarter twenty twenty five Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Jessie Zhao, Director of Investor Relations. Please go ahead.

[Jessie Zhao, Director - IR at Daqo New Energy]

Hello, everyone. I'm Jessie Zhao, the Investor Relations Director of Zako New Energy. Thank you for joining our conference call today. Zako New Energy just issued its financial results for the 2025, which can be found on our website at www.dqsolar.com. Today, attending the conference call, we have our Chairman and CEO, Mr. Jiang Xu our Deputy CEO, Ms. Anita Xu our CFO, Mr. Min Yang and myself. Today's call will begin with an update from Mr. Xu on market conditions and company operations, followed by a translation from Mr. Xu for Mr. Xu. And then Mr. Yang will discuss the company's financial performance for the quarter. After that, we will open the floor to Q and A from the audience. Before we begin the formal remarks, I want 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.

[Jessie Zhao, Director - IR at Daqo New Energy]

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 statement. 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.

[Jessie Zhao, Director - IR at Daqo New Energy]

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 also occasion we will occasionally reference monetary amounts in U. S. Dollar terms.

[Jessie Zhao, Director - IR at Daqo New Energy]

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. Now I will turn the call to our Chairman and CEO, Mr. Xiang Xu. Mr. Xu, please go ahead.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Thank you, Mr. So hello, everyone. This is Anita, and I'll now deliver our CEO, Mr. Zhu's remarks. So the solar PV industry faced continuous challenges in the 2025 with market prices across the solar value chain declining due to industry overcapacity and high inventory levels, remaining below cash cost levels.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

As a result, Zafo New Energy recorded quarterly operating and net losses. Nevertheless, we maintained a strong and healthy balance sheet with no financial debt. As of 06/30/2025, the company had a cash balance of CNY599 million, short term investments of CNY490 million, bank notes receivable of $49,000,000 and total fixed term bank deposit balance of $994,000,000 In total, our financial bank deposits and investment assets readily convertible into cash as needed stood at US2.06 billion dollars providing us with ample financial liquidity. With no financial debt, our solid financial position brings us confidence and strategic resilience to navigate conditions and weak selling prices. Total production volume at our two hot water facility for the quarter was 29,012 metric tons, within our guidance range of 25,000 metric tons to 28,000 metric tons.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Towards the end of the quarter, our Chinese authorities intensified efforts to curb this orderly competition. We proactively scaled back new sales orders in anticipation of future price recovery. Accordingly, our sales volume for the quarter decreased to 18,126 metric tons from 28,008 metric tons in the first quarter. Due to lower utilization across our factories, idle facility related costs for the quarter was approximately US1.3 dollars per kilogram, primarily reflecting noncash depreciation expenses. On a positive note, decline in the cost of silicon metal and and reduced energy consumption drove our cash cost lower by 4% to USD 5.12 per kilogram sequentially, including approximately $0.18 per kilogram related to idle facility maintenance.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Overall, polysilicon unit production cost decreased by 4% sequentially to an average of US7.26 dollars per kilogram, with lower unit depreciation costs resulting from higher production. In light of the current market conditions, we expect our total polysilicon production volume in the 2025 to be approximately 27,000 to 30,000 metric tons. As a result, we anticipate our full year 2025 production volume to be in a range of 110,000 metric tons to 130,000 metric tons. During the second quarter, the solar PV industry remained in a cyclical trough, although proactive initiatives start to emerge towards the end of the quarter. On the demand side, China experienced a surge in installations under market based reform policies and set a new global record with a staggering 93 gigawatts of new solar power capacity added in May.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

However, installations plummeted to 14 gigawatts in June, falling front loading earlier this month, ahead of the 05/31/2025 cutoff date for new projects. Poly market prices trended downward during the quarter, falling from RMB39 to 45 per kilogram in April to RMB32 to RMB35 per kilogram by the June. According to industry statistics, overall industry poly production for twenty twenty five year to date has been running below overall demand and consumption with monthly supply of approximately 100,000 to 110,000 metric tons. As a result, energy inventory decreased by approximately 30,000 to 40,000 tons between January and July, leaving overall industry polysilicon inventory lower than at the beginning of the year. Heading into the third quarter, Chinese authorities have demonstrated increased determination to address irrational competition and energy overcapacity with the anti evolution initiative taking a lead role in sectors such as solar PV.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

On June 29, an article from China's official newspaper People's Daily highlighted the issue of oversupply and disruptive competition in the solar PV industry, calling for measures to curb business competition and promote high quality development. On June 1, President Xi emphasized the need to regulate disorderly low price competition and phased out outdated capacity at the Central Financial and Economic Affairs Commission meeting. The following day, the Ministry of Industry and Information Technology convened a symposium with four key solar PV companies to accelerate the industry's transition toward high quality growth. Most recently, on July 24, government authorities released a draft amendment to the price law, representing a significant step towards strengthening market supervision and deterring unfair pricing practices. The draft clarifies criteria for identifying unfair pricing behavior, such as low price bumpings and strengthened legal accountability for price related violations.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

As a result, Poly's pulp sales prices have rebounded in July and Poly's future prices surged significantly, supported by favorable factors such as expected higher spot pool and simultaneous increases in downstream product prices. For reference, the 2,500 six-nine contract rose sharply from a low of RMB30 per kilogram in June 2025 to a record high of RMB55 per kilogram in July 2025, the strongest level since 2020. The solar PV industry continues to shift strong long term prospects. In the medium term, we believe that the combined effect industry self disappointment, government anti evolution regulations will foster healthier and more sustainable industry. In the long run, as one of the most effective and sustainable energy sources globally, solar power is expected to remain a key driver of the global energy transition and sustainable development.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Looking ahead, DAACO New Energy is well positioned to capitalize on the long term growth in the global solar PV industry and strengthen its competitive edge by enhancing its higher efficiency in touch technology and optimizing its cost structure through digital transformation and AI adoption. As one of the world's lowest cost producers with the highest cost, highest quality end touch products, a strong balance sheet with no financial debt, We're confident in our ability to weather the current market downturn, capitalize on market recovery and emerge as a leader in the industry positioned to capture further growth. So now I'll turn the call to our CFO, Mr. Ming Yang, who will discuss the company's financial performance for the quarter. Ming, please go ahead.

[Ming Yang, CFO at Daqo New Energy]

Thank you, Anita, and hello, everyone. This is Ming Yang, CFO of Dacunyu Energy. We appreciate you joining our earnings conference call today. I will now go over the company's second quarter twenty twenty five financial performance. Revenues were $75,200,000 compared to $123,900,000 in the 2025 and $219,900,000 in the same 2020.

[Ming Yang, CFO at Daqo New Energy]

The decrease in revenue compared to the 2025 was primarily due to a decrease in sales volume. Gross loss was $81,400,000 compared to $81,500,000 in the 2025 and $159,000,000 in the 2024. Gross margin was negative 108% compared to negative 65.8% in the 2025 and negative 72 in the same quarter of twenty twenty four. The decrease in gross margin compared to the 2025 was primarily because sales volume decreased while idle facility costs remained relatively fixed. SG and A expenses were $32,100,000 compared to $35,100,000 in the 2025 and $37,500,000 in the 2024.

[Ming Yang, CFO at Daqo New Energy]

SG and A expenses during the second quarter included $18,600,000 in non cash share based compensation costs related to the company's share incentive plan compared to $18,600,000 in the 2025. The decline in SG and A expenses in the second quarter compared to the first quarter is a result of lower staffing costs as well as lower sales expenses. R and D expenses were $800,000 compared to $500,000 in the 2025 and $1,800,000 in the same quarter of twenty twenty four. R and D expenses can vary from period to period and reflect R and D activities that take place during the quarter. As a result, the foregoing loss from operations was $115,000,000 compared to $114,000,000 in the 2025 and $195,600,000 in the same quarter of 2024.

[Ming Yang, CFO at Daqo New Energy]

Operating margin was negative 153% compared to negative 92% in the 2025 and negative 89% in the same quarter of 2024. Net loss attributable to Acornu LNG Corp. Shareholders was $76,500,000 compared to $71,800,000 in the 2025 and $119,800,000 in the 2024. Loss per basic ADS was $1.14 compared to $1.07 in the 2025 and $1.81 in the 2024. Adjusted net loss attributable to Daco New Energy Corp.

[Ming Yang, CFO at Daqo New Energy]

Shareholders excluding non cash share based compensation costs was $57,900,000 compared to $53,200,000 in the 2025 and $98,800,000 in the same 2024. Adjusted loss per basic ADS was $0.86 compared to $0.80 in the 2025 or $0.50 in the same quarter of 2024. EBITDA was negative $48,000,000 compared to negative $48,400,000 in the 2025 and negative $145,000,000 in the 2024. EBITDA margin was negative 64% compared to negative 39% in the 2025 and negative 66% in the 2024. Now on the company's financial condition.

[Ming Yang, CFO at Daqo New Energy]

As of 06/30/2025, the company had $599,000,000 in cash, cash equivalents and restricted cash compared to $792,000,000 as of 03/31/2025 and $998,000,000 as of 06/30/2024. As of 06/30/2025, short term investments was $418,800,000 compared to $168,000,000 as of 03/31/2025 and $219,500,000 as of 06/30/2024. And as of 06/30/2025, notes receivable balance was $49,000,000 compared to $62,700,000 as of 03/31/2025 and $80,700,000 as of 06/30/2024. Notes receivable balance represent bank notes with maturity within six months. And as of 06/30/2025, the balance of fixed term deposits within one year was $960,700,000 compared to $1,120,000,000 as of 03/31/2025 and $1,170,000,000 as of 06/30/2024.

[Ming Yang, CFO at Daqo New Energy]

Now on the company's cash flows. For the six months ended 06/30/2025, net cash used in operating activities was $105,400,000 compared to $278,600,000 in the same period of 2024. And for the six months ended 06/30/2025, net cash used in investing activities was $342,700,000 compared to $1,700,000,000 in the same period of 2024. The net cash used in investing activities in the 2025 includes $87,800,000 in the purchase of GP and E and $255,000,000 related to purchase of short term investments and fixed term deposits. And for the six months ended 06/30/2025, net cash used in financing activities was $32,000 compared to $43,000,000 in the same period of 2024.

[Ming Yang, CFO at Daqo New Energy]

And that concludes our prepared remarks. We will now open the call to Q and A from the audience. Operator, please begin.

[Operator]

Thank you. We will now begin the question and answer session. Our first question today will come from Allen Han of JPMorgan. Please go ahead.

[Alan Hon, Head of Asia Power & Utilities and Renewables Equity Research at JP Morgan]

You for letting me ask questions, management. I have two questions. The first one is on the policy development. Can you share some color on the latest development on the discussions on the consolidation fund or other policy development right now? And number two is on product prices.

[Alan Hon, Head of Asia Power & Utilities and Renewables Equity Research at JP Morgan]

I understand like due to the pricing law, I mean the product prices increased towards the 45 to 50% level. But at the same time, I mean the sequential demand supply and channel inventory is also increasing. So how should we think about like the product price in the next three months? Thank you.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

So regarding the latest development in industry, August 19, the MIT also the NDRC along with the Ministry of Social Affairs and State Administration for Market Regulation and National Energy Administration, We have jointly held a symposium on the solar PV industry. So during that meeting, a number of government officials together with a number of solar PV manufacturers and lower power companies as well as the CPRA and relevant local industrial and information technologies department, they all attended the meeting. And basically, during the meeting, they have again reinforced that we have to curb the irrational composition of selling below cost. So first, we have to strengthen the industry regulation through strengthening the management of investment in the PV projects and promote the gradual phasing out of outdated production capacity through market oriented and law based approaches. And second of all, they aim to curb low prices in the quarterly competition, so through improving the price monitoring and also the product pricing mechanism to track down irregular practices such as selling the low cost.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

And lastly, to standardize the product quality, so combat processes such as reducing the quality control or things like imprinting IP rights. And I think during the meeting, the essence is to support the industry industry self regulation and to gradually work towards forming this buyout SPV for acquiring outdated capacity in the industry. And regarding prices, it will really depend on how this buyout of TV will roll out because we're still under the progress of working out the details of such TV. So it's hard for us right now to say exactly how prices will develop in the coming months. But I think as we can see recently, prices have increased, especially in the futures market and the expectation of rising prices.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Also, if we look at the latest solar projects that could work as a sign of the industry development. The China Huadian Corporation, they had a 20 gigawatt project. And from that, the module like this was around RMB71 per watt to RMB75 per watt. So it has really increased, and it's way above the floor prices for modules right now. And we believe that has passed through to the upstream poly sector. So I hope that answers your question.

[Operator]

Our next question today will come from Philip Shen of ROTH Capital Partners. Please go ahead.

[Matthew Ingraham, Equity Research Associate at Roth Capital Partners]

Hi, this is Matt Ingram on for Phil. Thank you for taking our questions. Kind of following up on the past question is, how sustainable do you think that higher pricing can be when with the anti involution initiatives? And secondly, what's your outlook for industry production volumes? And when would you expect to see the inventory levels be healthy again?

[Ming Yang, CFO at Daqo New Energy]

Give us a minute. We're going to translate for Mr. Shiba.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Okay. So first of all, I think one thing that's clear is that there has been consensus that selling below cash cost is unsustainable and very detrimental to the overall industry development. And in our view, that's disruptive to the healthy development of the industry and hence, pose illegal risks. And hence, we won't be we would be enforcing the regulations and the laws, and we think that all the industries all the industry players are on the same page regarding that. And in terms of production volume, I think going forward in the next couple of months, it will be around 100,000 metric tons to around 110,000 metric tons, relatively balanced with demand.

[Ming Yang, CFO at Daqo New Energy]

Per month?

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Per month.

[Matthew Ingraham, Equity Research Associate at Roth Capital Partners]

Okay. And then you kind of talked about potentially in the past, like acquiring surplus production capacity. Is there an update on that strategy? And do you think we could see anything in the near term?

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Yes. I think we're still under first of we're still in progress for the NPV. And I think the whole picture will become more clear in the coming weeks or the coming months. But all the energy players as well as the power companies and the relevant regulators are all working hard toward coming to a consensus because that would be very remarkable for the industry and could set the tone for similar industries in China, such as EV and also lithium batteries. I think they're starting with solar PV, which is why they are mentioned about solar PV in the news article by People's Daily on June 30.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

So we are all working very hard towards coming to a result. And we are quite optimistic about that because that's what the industry should be, and that's good for the overall development of the industry because right now, selling lower cash cost, first of all, none of the company is making a profit. And second of all, internationally, they have been viewing China or accusing China of antidumping, and that's not something that we want to see as a whole.

[Operator]

Our next question today will come from Allen Yong of Jefferies. Please go ahead.

[Alan Young, SVP at Jefferies]

Thanks a lot for taking my question. My question is about the buyback the company just announced. So I saw that the company has approved $100,000,000 of share repurchase program. Wonder if what's the thinking behind that? And also, what's the time line in the buyback?

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Yes. Thank you, Alan. So we actually just authorized this new share repurchase program today of in the amount of $100,000,000 until the end of next year. And the logic behind this is that we are optimistic about the future of the industry, and we believe we could see a turning point soon. I believe previously, our valuable shareholders have been wondering when will we want to start the share repurchase.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

And the reason why we were hesitant about it is because we believe that we just rely on the market to rebalance supply and demand. Will take a relatively long time of approximately two to three years given how strong and all the companies who have expanded their capacity this round are. However, we believe that because we are on the same page towards promoting the healthy development of the industry, and hence, we are more optimistic about the future or the outlook of the entire industry. And we believe that we want to strengthen the confidence of our shareholders as well, and that's aligned with our overall strategy. And in terms of the overall pace of the share repurchase program, I think that would also be contingent upon the market development, but that's definitely the first move we're working towards, strengthening the confidence in the market.

[Alan Young, SVP at Jefferies]

Given that the stock price of Asia is actually up off IPO price already. So will share price or shareholding reduction on the Asia to fund further buyback in USD back on the table again? Yes.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

I think that's definitely a consideration given that we have been trading above the IPO issue price, right now, it should be around €30 And yes, that's definitely on the table, and we'll consider that. But I think how we want to start this program versus remaining cash on our goes right now because previously, we still have a meaningful amount on the list goes. So we will start with that allocation first. But selling on Asia to repurchase on The U. S. Is definitely back on the table.

[Alan Young, SVP at Jefferies]

That's very clear. And following the question from Alan and also Philip on the consolidation initiative. So how do you see yourself in terms of the end game like amount of volume you will be able to produce? For example, now your guidance is around eleven thousand one hundred and ten and one hundred and thirty thousand of hydro plants for the production volume of this year. If the consolidation export is successful, what do you think will be your production volume going forward?

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

I think that depends on a couple of things. So if we calculate the amount of overall capacity that's built or in the process of being built, that will be around 3,500,000 metric tons at least. And the production volume of how much we have produced per year will really depend on how much capacity are still remaining in the market and the overall demand per year, right? Because I think the fundamentals behind this action is that the supply would meet the demand per year from now on. So I believe that going forward, all the companies will reduce their utilization rates or operate at a utilization rate that would match the demand.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

So it won't be 100%, at least in the coming years.

[Ming Yang, CFO at Daqo New Energy]

Great. Thanks, Alan.

[Operator]

Our next question today will come from Mengwen Wang of Goldman Sachs. Please go ahead.

[Mengwen Wang, Securities Representative & Analyst at Goldman Sachs]

Hi. Thank you, management for taking my question. I have two questions mainly related to the Polyprice outlook. So first, like do we have any color on the benchmark production costs to derive the policy regulated pricing? Because I know there's a lot of news coming in to talk about selling price should not be under the production cost, but do we have any more colors on the definition of the production cost?

[Mengwen Wang, Securities Representative & Analyst at Goldman Sachs]

And secondly, as we mentioned, like the we have been doing well in terms of to sustain the poly price hike. And as a result, our shipment volume declined a bit. So going forward, how do we see how do we balance the price and inventory, the dynamic? Yes, that's my question. Thanks.

[Ming Yang, CFO at Daqo New Energy]

Okay. Thanks, Mohan, for your question. So our view is that the industry will need to sell at a price above the industry production costs. And our understanding is the industry overall, I would say the average production cost probably in the mid-forty ish range. So our view is that because of the Chinese law and the government policy is that that's kind of that will be the minimum poly pricing that industry players will be required to sell to its customers.

[Ming Yang, CFO at Daqo New Energy]

And I think if you look at the most recent, I think both transactional pricing as well as futures pricing, in the high kind of the high-40s to the low So that is reflective of this new government policy that requires the industry players to sell above production costs. So that is our poly price outlook going forward.

[Mengwen Wang, Securities Representative & Analyst at Goldman Sachs]

Yes. To follow-up the question, if the poly price stay at around RMB50 per kilo and if we don't our product don't sell, like we keep piling up our inventory. So how do we see how to like what's our strategy in terms of this kind of situations?

[Ming Yang, CFO at Daqo New Energy]

I think there will be industry policies and perhaps government policies supported by the government, but and that will require industry supply to balance with industry demand, right? Let's say, just making assumptions, If industry demand say is 1,200,000 tons per year in 100,000 tons per month, then the industry sales and the annual production will be consistent with that demand levels. So it will be adjusted so that poly pricing can be maintained at the production costs or above level.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

And to follow-up on your question on inventory, I think for big picture is people want to manage their inventory. I think the direction is to manage the utilization rates of the company so that we'll not be over demand going forward. And for us, we will really have to wait to see how the regulation unfolds in the next coming weeks or the next coming months that before we can decide what our strategy will be. And also to add on, I know there are companies who are participating in the futures market. We've also participated a meaningful amount in the futures market just to hedge against risk and to arbitrage as a strategy.

[Mengwen Wang, Securities Representative & Analyst at Goldman Sachs]

Yes. Thanks,

[Mengwen Wang, Securities Representative & Analyst at Goldman Sachs]

Yan, and thanks, Anita. That's really clear. So to sum up, we are expecting some kind of policy to help the industry cut production into September. And we have actively engaged in the polysilicon future market in order to mitigate the volatility of the polysilicon price, right?

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

We I mean we were registered as the first batch of the companies who are allowed to sell in the futures market. But strategy wise, it will really depend on the regulations will come out and yes, and how the spot prices will move.

[Mengwen Wang, Securities Representative & Analyst at Goldman Sachs]

Yes. Sure. How about the policy time line? Is that should we expect any meaningful policy kicking into September?

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

We are working towards or all of the related parties, including the CPI, the manufacturers and the related regulators are working very diligently toward a result coming out from the continuous meetings. However, we cannot guarantee, but we believe that because everyone is on the same page, we are working towards a result or a proposal coming out.

[Operator]

The next question today will come from Shiwa Xu of CICC. Please go ahead with your question.

[Zihui Hu, Analyst at China International Capital Corporation (CICC)]

Thanks, management. This is Sohui Hu from SICC. And my first question is, I thought you lowered the sales volume for second quarter. So how's the plan on it? And what's the plan for utilization rate in the future?

[Zihui Hu, Analyst at China International Capital Corporation (CICC)]

And my second question is, I saw you keep reduced the production cost. Besides the reduced cash cost, so what other ways are there to reduce the cost? Thank you.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Thank you, Sukwei. So I think for the first question, the reason why the sales volume is meaningfully below the production volume because prices are really trading at a very low level and below cost cost level. And as we are working towards or working out a proposal since and the first meeting that was hosted and hosted by MIT and DRC were happening in the second quarter. So we were waiting to see how the policies will shift or how much capacity will phase out in the future so that we can adjust our sales strategy accordingly. And we believe that once the regulations comes out, if any, then we will try to maintain our inventory at a healthy level.

[Ming Yang, CFO at Daqo New Energy]

Look, I'll follow-up. So regarding utilization rates, so I think we're maintaining this 30% to 35% utilization rate. I think it will be subject to, for example, demand environment and pricing as well as the industry consensus or industry self discipline in terms of supply and production. So you'll be a balance of those decisions. But I think currently we're maintaining the 30% to 35% utilization rate for now in the monitoring industry status and progress.

[Ming Yang, CFO at Daqo New Energy]

In terms of production costs, I think for Q2, it is slightly lower than Q1. I think it's helped by both improvements in manufacturing efficiency and for example lower energy usage, lower metal And currently, we're expecting the cost trend to continue to improve for Q3 as well. So for example, our current cash cost is approximately, say, 5 per kilogram right now, I think, on the current supplemental cost, which is already lower than our Q2 twenty twenty five cost. So that's the current cost status for the company.

[Zihui Hu, Analyst at China International Capital Corporation (CICC)]

Thank you.

[Ming Yang, CFO at Daqo New Energy]

Okay. Thank you. Goodbye.

[Operator]

Our next question will come from Gordon Johnson of GLJ Research. Please go ahead.

[Gordon Johnson, Founder & CEO at GLJ Research]

Hey, guys. Thanks for taking the questions. So I guess my first question is, it seems like you guys explicitly said you intentionally held back polysilicon sales in the second quarter. So can we conclude from that that you'll sell more in the third quarter, if you can provide some color there? And then from my calculations, it seems like you're guiding production to increase from 26,000 metric tons at the midpoint in Q2 to 28,500 in Q3 and then 40,700 in Q4.

[Gordon Johnson, Founder & CEO at GLJ Research]

Should we take from that you intend to sell significantly more polysilicon in Q4? And then I have a follow-up.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Okay.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Thank you, Gordon. So first of all, I think the reason why we held back or sold relatively a lot lower than our actual production volume was because it was trading at below cash cost. And as we don't want to disrupt the overall the industry dynamics or I should say, as the industry has guided out, we should not be selling below the production cost. We have adjusted our sales strategy accordingly. And going forward, in the third quarter, you might have seen recently that prices have ticked up.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

And we believe if it's not cutting below our cost, then it makes sense for us to start selling. And like I said before, I think it will really depend on when and how the regulations will come out, then we would adjust our sales strategies accordingly in the remaining days in the third quarter as well as going forward into the fourth quarter.

[Gordon Johnson, Founder & CEO at GLJ Research]

Okay, that's helpful. And then if I think about you guys said that transactions and the futures market is around the high 40s, low 50s. Based on my calculation, that would suggest the price of around $7.7 for polysilicon USD. Yet your ASP in Q2 was $4.19 So I understand you don't have great visibility, it seems like on what you're going to sell in Q3 until policy is decided. But are you transacting at that price that you highlighted the high 49slow 50s levels right now? Thank you for the questions.

[Ming Yang, CFO at Daqo New Energy]

Gordon, so I think that there's two specific goals that the company is trying to achieve, right? So one is based on the I think the government policies and the new law. So I think we will sell at below above our production cost for sure. And I think the levels indicated is representative of the market current transactional cost. And also one of our another of our company's sales operations goal is to significantly reduce our inventory at hand as well given the current market dynamic environment where there's opportunity to do that.

[Ming Yang, CFO at Daqo New Energy]

So we will try our best to do that. And I guess one clarification regarding pricing is RMB price that we call actually includes a 13% VAT, okay? So I think you have to divide by 1.3 to get to the actual selling price ex VAT. So that's ramp up roughly maybe 5.8 range something like that.

[Gordon Johnson, Founder & CEO at GLJ Research]

Right. So I mean does that mean you guys will be gross margin positive in Q3? Thank you.

[Ming Yang, CFO at Daqo New Energy]

Let just conclude that we expect to be cash generating cash from our sales. Because there's a lot of, I guess, noncash depreciation costs related to our idle facility because we're only running at onethree utilization. But I think if you you remove the non cash depreciation, I think we're going to generate positive cash margin from sales.

[Gordon Johnson, Founder & CEO at GLJ Research]

Very helpful. Thank you. Thank you.

[Ming Yang, CFO at Daqo New Energy]

Okay. Good. Thanks, Gordon. Thank you.

[Operator]

This will conclude our question and answer session. At this time, I'd like to turn the conference back over to Jessie Zhao for any closing remarks.

[Jessie Zhao, Director - IR at Daqo New Energy]

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 have an awesome day. Goodbye.

[Operator]

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.

Participants

Analysts

• Jessie Zhao, Director - IR at Daqo New Energy
• Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy
• Ming Yang, CFO at Daqo New Energy
• Alan Hon, Head of Asia Power & Utilities and Renewables Equity Research at JP Morgan
• Matthew Ingraham, Equity Research Associate at Roth Capital Partners
• Alan Young, SVP at Jefferies
• Mengwen Wang, Securities Representative & Analyst at Goldman Sachs
• Zihui Hu, Analyst at China International Capital Corporation (CICC)
• Gordon Johnson, Founder & CEO at GLJ Research