Author/Pork Bucket under the Stars

EDIT/SPINACH STAR

typography/leeks under the stars

in 2023, photovoltaic enterprises can be regarded as a complete fall from the altar, especially the upstream production of polysilicon enterprises, with polysilicon prices plummeted, corporate performance precipitous decline.

on January 31, polysilicon leader daquan energy (688303) issued a performance pre-reduction announcement, showing that the net profit attributable to the parent is expected to be 57-5.8 billion in 2023, down 69.67 -70.19 from the same period of last year.

Source: Daqo Energy Bulletin

and this is only the beginning. in 2024, daqo energy will have even worse results.

1. silicon prices fall, gross margin back to its original shape

As we all know, the price of photovoltaic silicon has experienced a crazy rise, the fundamental reason behind it is because of the mismatch of upstream and downstream expansion cycle, resulting in photovoltaic silicon was once in short supply. However, in 2023, with the gradual release of silicon production capacity, the supply and demand pattern has been reversed, and the price of photovoltaic silicon has dropped from 200 yuan/kg to 50 yuan/kg.

affected by this, it is reasonable that daqo's energy performance will be reduced in 2023.

2024 will only be worse than 2023. Because looking back at the first half of 2023, silicon prices are still high. In the first quarter and the second quarter, the average selling price (excluding tax) of Daquan Energy polysilicon was 190.42 yuan/kg and 86.35 yuan/kg respectively. Gross profit margin reached 72.17 and 41.90 respectively.

Source: Daqo Energy Q3 Report

But from the second half of the year, Daqo Energy was really beaten back to its original shape.

in the third quarter of 2023, the average selling price (excluding tax) of daquan energy polysilicon was 55.63 yuan/kg, and the gross profit margin has dropped to 14.94 .

and throughout 2024, or will maintain this state.

although the price of silicon has come down, the pace of expansion of large silicon factories has not stopped. According to the China Merchants Bank Research Institute, it is expected that 1.35 million tons of polysilicon will be put into production in 2024.

Globally, silicon capacity continues to excess . The former profiteering of the industry is gone forever.

2. silicon material overcapacity, granular silicon menacing

in fact, for the photovoltaic industry, the price reduction of silicon is not the biggest disaster. the sharp rise caused by the mismatch of supply and demand in the early stage is accidental. now it is just a return to the rational interval .

For Daqo Energy, the shrinking profits caused by the price reduction of silicon is not the most fatal, after all, the entire industry is like this. The more critical question is, with the overcapacity of silicon materials, in the increasingly fierce market competition , can Daqo Energy maintain its competitive advantage?

As we all know, there has always been a dispute between the route of rod-shaped silicon and granular silicon on the silicon track. Daquan energy is one of the main players of rod-shaped silicon, and the representative enterprise of granular silicon is xiexin technology (HK3800).

For a long time, rod-shaped silicon has been the mainstream of the market, but now, granular silicon is menacing.

1 ► Volume Price

Today's low silicon prices are forcing companies to reduce costs. In the third quarter of 2023, the silicon cost of Daquan Energy has been reduced from 53.45 yuan/kg at the beginning of the year to 47.77 yuan/kg, which is quite effective.

Source: Daqo Energy Third Quarterly Report

But on the issue of cost, granular silicon, known for its low energy consumption , has always had a more say.

according to the 2023 semi-annual report of xiexin technology, in June 2023, the average manufacturing cost of granular silicon dropped by 41% compared with the end of last year, which is the leading level in the industry.

Source: GCL Technology 2023 Semi-Annual Report

Xiexin's statement in the financial report is rather implicit, and it has never said how much this so-called leading position is. However, xiexin disclosed the production cost of Leshan xiexin granular silicon project, one of its three major production bases, which is about 35.68 yuan/kg.

Source: GCL Technology 2023 Semi-Annual Report

according to this standard, if xiexin continues to lower the price, then I'm afraid there is no room for daquan to survive.

2 ► Spelling quality

however, although daquan may not be able to beat xiexin in price, it can still rely on quality to win.

In theory, compared with rod-shaped silicon, the quality of granular silicon is worse, because the exposed surface area of granular silicon is large, which is easy to absorb impurities and affect the purity.

Xu Xiang, vice chairman of Daquan Energy, also made it clear that "the quality of Siemens rod-shaped silicon is much higher than that of granular silicon" and "it is not difficult to build granular silicon factories, but through full communication with downstream enterprises, we found that granular silicon still has many bottlenecks to overcome.

The implication is that we are not unable to produce granular silicon, but because of the low quality of granular silicon, disdain in production.

Source: Titanium Media APP, January 4, 2024

however, although daquan has been singing down granular silicon, xiexin made it clear in its 2023 semi-annual report that at present, the proportion of products with a total metal impurity content of granular silicon of less than 0.5ppbw has exceeded 70%.

In terms of metal impurities, the current entry threshold for N-type products is 1ppbw, and 0.5ppbw can meet the most demanding customer requirements.

Source: GCL Technology 2023 Semi-Annual Report

Xu Xiang said that in the process of replacing P type with N type, granular silicon will encounter great challenges. However, the result given by xiexin is that granular silicon products have been used in batch production of n-type products , accounting for 20% + of n-type supply share of domestic suppliers.

ObjectivelyIn terms of granular silicon products, there are still some problems. According to the 2023 semi-annual report of Xiexin Technology, "If there are defects in the operation level, the powder content of the product will fluctuate, and a high proportion of delivery will have some impact on the N-type single crystal process".

Source: GCL Technology 2023 Semi-Annual Report

However, Xiexin is optimistic about this and proposed in the semi-annual report that it will completely make up for the short board of application within the year.

3. the long run, the situation is worrying

generally speaking, daquan and xiexin hold different opinions. as to which one is stronger, let the data speak.

In the first half of 2023, GCL Technology will produce 111000 metric tons of polysilicon, of which granular silicon accounts for 74% and rod-shaped silicon for 26%. Polysilicon sales were 101000 metric tons, up 150.89 YoY.

In the same period, Daquan Energy's polysilicon sales increased by only 0.59 year-on-year. Behind it, perhaps to some extent by the expansion of capacity constraints. However, in the first quarter alone, the sales volume of Daquan polysilicon even dropped 35% year on year. This problem cannot be explained by production capacity.

Source: Daqo Energy Financial Report

In the third quarter of 2023, Daquan Energy's polysilicon sales increased 91% year-on-year, thanks to the release of efficient N-type silicon production capacity. Although it is not as good as GCL's 150 per cent growth rate, it is also considerable, reversing the decline in overall sales in the first three quarters.

However, the N-type silicon material is not far from the Red Sea competition.

It is also worth mentioning that GCL does not rely on low prices to win. In the first half of 2023, the average price of polysilicon sold outside xiexin excluding tax was 124.1 yuan/kg; Daquan Energy is 120.52 yuan/kg. The price of Xiexin's products is slightly higher than that of Daquan.

if the selling price reflects the quality, does it mean that the market recognition of GCL's products is at least not inferior to that of Daquan?

Daquan Energy is facing a price cut for silicon and a competition for low-cost granular silicon.

Note: This article does not constitute any investment advice. The stock market is risky and you need to be cautious when entering the market. No sale, no harm.