21st Century Business Herald trainee reporter Deng Hao reporting from Shanghai

on the evening of January 23, daquan energy (688303.SH) announced that its two suppliers, Xinjiang xian an new materials co., ltd. (hereinafter referred to as "xian an new materials") and Xinjiang dengbo new energy co., ltd. (hereinafter referred to as "dengbo new energy"), sued daquan energy for breach of contract, demanding compensation of 1.959 billion yuan.

Daquan Energy said it did not have a fundamental breach of contract, and the total amount involved in the lawsuit accounted for 10.24 per cent of its most recent audited net profit, which was a small proportion and would not have a significant impact on daily production and operation.

regarding the business details of both parties and whether disputes were caused by the rapid decline in polysilicon prices, the reporter called daqo energy securities department several times on January 24 to inquire, but no reply has been received as of the time of publication.

on the disk, Daquan Energy opened all the way down today, closing down 9.13 per cent to 26.67 yuan per share as of the morning close.

two suppliers claim nearly 2 billion yuan

public information shows that the plaintiffs xian an new materials and dengbo new energy are affiliated enterprises, and the actual controller is Jin sheng, a natural person. The two companies provided silicon core processing services for the defendant Daquan Energy. Daquan Energy provided polysilicon materials, Xian 'an New Materials was responsible for silicon rod pulling, and Dengbo New Energy was responsible for silicon core cutting.

in January 2022, daquan energy and xian 'an new materials signed a "business cooperation agreement", agreed that daquan energy will lease its plant to xian 'an new materials to do crystal production plant use, and the use of outsourcing processing mode, the silicon material weight after the xian 'an new materials and its related parties for silicon core processing.

at the same time, it is agreed that Daquan energy and its affiliated companies shall have the exclusive obligation to purchase Xian 'an new materials and its affiliated companies when the paid-in registered capital of Xian 'an new materials reaches RMB 33.49 million yuan or more on the premise that Xian 'an new materials and its affiliated parties ensure that the silicon core to the delivery party according to the quantity and delivery date agreed in the contract signed with Daquan energy and meet the requirements of Daquan energy quality index.

in July 2022, daquan energy and dengbo new energy signed the annual contract, agreeing that daquan energy entrusted dengbo new energy to carry out silicon core cutting and arrange silicon rod pulling. the specific silicon rod pulling work will be implemented by xian an new material. the entrusted processing fees for silicon core under the annual contract will be settled by daquan energy and dengbo new energy.

the plaintiff believes that since the expiration of the validity period of the annual contract (April 30, 2023), daquan energy has not renewed the new contract with dengbo new energy, and since April 19, 2023, daquan energy has not issued a purchase order to dengbo new energy. it has reason to believe that daquan energy and its related parties have turned to cooperate with other suppliers on their own, which constitutes a fundamental breach of the business cooperation agreement.

in June 2023, the plaintiff filed a lawsuit with Shihezi municipal people's court, demanding the dissolution of the "business cooperation agreement" signed by xian an new materials and daqo energy, and daqo energy compensated for its economic losses totaling 0.388 billion yuan.

in September 2023, the plaintiff submitted an application for change of claim to the people's court of Hezi city, demanding that the compensation amount be increased from 0.388 billion yuan to 1.959 billion yuan. Because the subject matter of the lawsuit exceeded the jurisdiction of the Shihezi City People's Court, the Shihezi City People's Court issued a transfer jurisdiction ruling in the same month and transferred the case to the Intermediate People's Court of the Eighth Division of the Xinjiang Production and Construction Corps for judgment.

Lower silicon prices slow capacity building

The aforementioned disputes may be related to the continuous decline in polysilicon prices since 2023, causing the relevant manufacturers to slow down capacity construction.

Daquan Energy's main products are high-purity polysilicon, mainly used in the photovoltaic industry, in the upstream link of the photovoltaic industry chain, polysilicon after melting ingots or pulling slices, can be made into polycrystalline silicon wafers and monocrystalline silicon wafers, respectively, and then used to manufacture photovoltaic cells. Depending on the downstream production of silicon wafers, high-purity polysilicon can be divided into monocrystalline silicon wafer materials and polycrystalline silicon wafer materials.

At present, Daqo Energy has formed an annual production capacity of 205000 tons of high-quality, low-energy, low-cost high-purity polysilicon, and is one of the main market participants in the polysilicon industry.

in 2022, under the support of the national "double carbon" strategy, the photovoltaic industry in all aspects of the expansion of production speed, although the polysilicon link is also accelerating the expansion of production, but subject to the technical difficulty, high investment, project construction site constraints strict conditions, long construction cycle and other factors, the expansion of production progress is relatively lagging behind. Upstream and downstream capacity mismatch, supply and demand changes, so that the price of polysilicon in 2022 is basically at a high level, attracting a large number of investors to join the construction of polysilicon projects.

Since 2023, the cyclical inventory consumption in the industry superimposed on the impact of new production capacity has been released one after another, and the domestic polysilicon supply has increased significantly, which in turn has led to a rapid decline in polysilicon prices.

The latest financial report shows that in the first three quarters of 2023, Daquan Energy achieved revenue of 12.878 billion yuan, a year-on-year change of -47.81; net profit attributable to the parent was 5.115 billion yuan, a year-on-year change of -66.09. Among them, Q3, Daquan Energy achieved revenue of 3.553 billion yuan, down 57.38 percent year-on-year, and net profit of 0.689 billion yuan, down 87.61 percent year-on-year.

In October 2023, Daquan Energy announced that the implementation cycle of the 100000-ton high-purity polysilicon project originally planned to be completed and put into operation by the end of 2023 has slowed down.

Zhongyuan Securities believes that at present, the polysilicon industry has more new production capacity, product prices have entered the industry cost range, and the industry's high-cost production capacity is facing loss pressure. Daqo Energy slows down the follow-up expansion project to help avoid the dilemma of production pressure and increase its resilience.