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Daqo New Energy Corp (NYSE:DQ)
Q1 2020 Earnings Call
May 20, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Daqo Energy First Quarter 2020 Results Conference Call. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Kevin He, Investor Relations. Please go ahead.

Kevin He -- Investor Relations

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 first 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 first 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 US 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 the preliminary views as of today and maybe 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 US dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer these translations into US dollars solely for the convenience of the audience.

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

Longgen Zhang -- Chief Executive Officer

Thank you, Kevin. Hello, everyone, thank you for joining our conference call today. We are pleased to report an outstanding quarter with excellent financial and operational results. I would like to thank our entire team for their hard work and dedication to make these outstanding results possible. Despite the outbreak of COVID-19 in China in January and the subsequent domestic lockdowns and the travel restrictions that created a particular difficult environment for securing raw materials, managing on-site operations and facilitating product shipment and logistics, we overcame these challenges successfully and operated at full capacity during the quarter.

The company produced record volume of 19,777 metric tons for the quarter and sold 19,101 metric tons of polysilicon. Thanks to growing economies of scale, significant savings on energy consumption and improved operational efficiency, our total production cost decreased to $5.86 per kg during the quarter, a decrease of 8% from $6.38 per kg in Q4 2019. Our cash cost during the quarter also decreased to $5.01 per kg, down from $5.47 per kg in Q4 2019.

In addition, we continue to make improvements in quality and were able to sell approximately 95% of our products to mono wafer customers. All in all, we are very proud of the achievements we made in expanding production volume, optimizing our cost structure and enhancing quality within only two quarters following the start of Phase 4A pilot production. Our exceptional results this quarter reflect the strong capabilities of our Xinjiang facilities at full production following the completion of the Phase 4A expansion project. We believe this also demonstrates our extensive experience and expertise in polysilicon manufacturing, and further solidifies our position as a global leader in the industry.

Despite the challenging market environment, we successfully expanded our gross margin by further optimizing our cost structure during the quarter. Gross margin during the quarter was 33.5%, compared to 29.5% in the fourth quarter of last year. An expanding gross margin and increasing sales volume resulted in $63.1 million in EBITDA, up 39% sequentially, and $37.7 million in adjusted net income, up 53.5% sequentially.

Towards the end of this quarter, the spread of COVID-19 globally and related lockdowns, particularly in the US, Europe and certain other other emerging markets resulted in significant disruptions to end market demand for solar PV products. This has created short-term market uncertainty and volatility across the solar PV industry during the second quarter with significant impact to our customers' orders and pricing.

Fortunately, the spread of COVID-19 has begun to ease in May and things are gradually returning to normal across all walks of life, particularly in China, we expect to see some rush orders from solar PV developers in China for legacy projects delayed from last year in order to meet the grid connection deadline set for the end of June. However, a recovery of demand from markets outside of China is critical going forward as overseas markets currently account for approximately 75% of total global solar end market demand.

With many economics beginning to reopen, we expect to see a gradual recovery of solar PV demand in the third quarter as the impact from COVID-19 fades over the next two months to three months. We are optimistic that the long-term solar PV growth prospects remain intact. Despite the near-term challenging market environment our solar PV energy continues to attract investors seeking to benefit from lower costs and interest rates. We are also confident in our ability to navigate this challenging environmental, leveraging our competitive advantages in product quality and cost structure.

Now I will discuss outlook and guidance for our company. We are currently conducting scheduled annual maintenance for part of our Xinjiang facility. Our facility has grown significantly over the years and for this year, we will be conducting annual maintenance by project phases on a rolling basis starting with early phases of the Xinjiang facilities, which had conducted its previous scheduled maintenance in the second quarter of last year.

As such we expect to produce approximately 15,500 metric tons to 16,500 metric tons of polysilicon and sell approximately 14,500 metric tons to 15,500 metric tons of polysilicon to external customers during the second 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. This outlook reflects Daqo New Energy's current and preliminary view as of the date of this press release and may be subject to change. The company's ability to achieve these projections is subject to risks and uncertainties.

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

Ming Yang -- Chief Financial Officer

Thank you, Longgen, and hello, everyone. Thank you for joining our call today. I will now discuss the company's financial performance for the first quarter of 2020.

Revenues were $168.8 million, compared to $118.9 million in the fourth quarter of 2019 and $81.2 million in the first quarter of 2019. The increase in revenue was primarily due to higher polysilicon sales volume.

Gross profit was $56.6 million, compared to $35.1 million in the fourth quarter of 2019 and $18.3 million in the first quarter of 2019. Gross margin was 33.5%, compared to 29.5% in the fourth quarter of 2019 and 22.6% in the first quarter of 2019. The increase in gross margin was primarily, due to lower production cost.

For the first quarter, our average total production cost was $5.86 per kilogram, a decline of 8%, as compared to the fourth quarter of 2019 production cost of $6.38 per kilogram. With full production of Phase 4A project and an optimized production process, we were able to achieve a cost structure that was better than our original plan. In particular, we achieved per unit electricity usage reduction of approximately 7%, compared to the previous quarter and a reduction of approximately 10%, as compared to Q1 last year. Cost reduction also benefited significantly from economies of scale.

Selling, general and administrative expenses were $8.9 million for the quarter, compared to $8.5 million in the fourth quarter of 2019 and $7.9 million in the first quarter of 2019. SG&A expenses during the quarter included $4 million in non-cash share-based compensation costs related to the company's share incentive plan.

R&D expenses were $1.7 million, compared to $1.7 million in the fourth quarter of 2019 and $1.3 million in the first quarter of 2019. R&D expenses can vary from period-to-period and reflect R&D activities that take place during the quarter. R&D projects this quarter includes new research projects for removal of impurities from production process and reduction of metal contamination to enhance our product's quality.

As a result of the foregoing, income from operations was $45.8 million, compared to $30.1 million in the fourth quarter of 2019 and $9.1 million in the first quarter of 2019. Operating margin was 27.1%, compared to 25.3% in the fourth quarter of 2019 and 11.3% in the first quarter of 2019. Interest expense was $6.3 million, compared to $3.9 million in the fourth quarter of 2019 and $2 million in the first quarter of 2019.

EBITDA from continuing operations was $63.1 million, compared to $45.4 million in the fourth quarter of 2019 and $19.9 million in the first quarter of 2019. EBITDA margin was 37.4%, compared to 38.2% in the fourth quarter of 2019 and 24.5% in the first quarter of 2019.

Net income attributable to Daqo New Energy shareholders was $33.2 million in the first quarter of 2020, compared to $20.1 million in the fourth quarter of 2019 and $6.6 million in the first quarter of 2019. Earnings per basic ADS was $2.37 in the first quarter of 2020, compared to $1.45 in the fourth quarter of 2019 and $0.50 in the first quarter of 2019.

Now I will discuss the company's financial condition. The company remains in solid financial condition and has ample liquidity to meet its operational requirements and financial obligations. As of March 31st, 2020, the company had $120.8 million in cash and cash equivalents and restricted cash, compared to $114.4 million as of December 31st, 2019 and $113.7 as of March 31st, 2019.

As of March 31st, 2020, notes receivable balance was $4.4 million, compared to $5.6 million as of December 31st, 2019, and $0.7 million as of March 31st, 2019. As of March 31st, 2020, total bank borrowings were $265.6 million, of which $149 million were long-term bank borrowings, compared to total borrowings of $280.1 million, including $151.5 million of long-term borrowings as of December 31st, 2019.

For the three months ended March 31st, 2020, net cash provided by operating activities was $31.1 million, compared to $48.5 million in the same period of 2019. And for the three months ended March 31st, 2020, net cash used in investing activities was $12.9 million, compared to $38.6 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 on Xinjiang Phase 3B and Phase 4A polysilicon projects.

For the three months ended March 31st, 2020, net cash used in financing activities was $10 million, compared to net cash provided by financing activities of $7.2 million in the same period of 2019.

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

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Philip Shen of ROTH Capital Partners. Please go ahead.

Philip Shen -- ROTH Capital Partners -- Analyst

Hi, everyone, and thanks for the questions. The first one is on pricing. I was wondering, if you could comment on for mono poly pricing. What you see for Q2 and also Q3? Pricing has obviously come down this year, due to the COVID demand destruction. A couple of months ago, on the Q4 call, you suggested that pricing could dip in Q2, and then there could be a rebound in pricing as high as $11 to $12 a kilogram, I believe, in Q3 and Q4. But what's your latest view? And do you see -- well just, yes, what's your latest view by quarter in Q2, Q3 and Q4? Thank you.

Longgen Zhang -- Chief Executive Officer

Thank you, Philip from ROTH Capital. This is Longgen. I think, if you look our Q1 ASP is $8.79, compare -- Q4 last year is $8.70 is a slighter increase. The reason is because we see I think in Q1 even though China hit by the COVID-19 in January and February, but most of the factories still running. So I think the order still is -- especially, I think, the order to our downstream client, especially LONGi, Jinko still I think at full capacity running, so we overcame all the challenges, shipping -- continue shipping good to them.

Then I think starting end of the March, especially beginning in last month and this month, I think the reason isbecause the US, the Europe, I think the COVID-19, I think caused the whole market restrictions, travel restrictions and shutdown working factory. I think the -- all the downstream I think ending market demand suddenly I think stopped. So push back to wafer, a sale even silicon demand is dramatically down. To us, we also faced a lot of challenge, but we strategically signed long-term contracts with I think LONGi and Jinko, especially LONGi. During the Q1 difficult time we still in over supply to all big clients.

So they are also very supportive in the second quarter, but the price we see in Q4 is around $7.20 to $7.50. And in May we see the price continue go down to $7 to $7.20. So we think this price basic a lot of polysilicon company is losing money and all the competitive even Tier 1 competitors, I think, they maybe I think a shutdown through the annual maintenance or reduce their capacity, running the capacity by discount. So we believe I think May and the June is a most -- I think lowest quarter on the silicon price. And the silicon price, I think on the Q3 will be back to $7 to $7.50 to $7.80.

Then on the fourth quarter, I think will be back to normal $8.50 to $9, because that's the industry average gross margin, I think around 25%. The ASP is around, I think, $9 or $8.50 to $9. Just want to remind you, in Q1, our mono silicon almost account for 95%, so that's why our ASP is $8.79. If you look at detail, mono silicon price Q1 actually is $8.97, compared to last quarter is $8.99 is slightly go down. ASP [Phonetic] go up the majority -- the major things is because our mono silicon percentage from Q4 2020 89% to 95% in Q1. So we will continue to keep such a high mono silicon percentage to keep the ASP, I think, leading in the industry.

Philip Shen -- ROTH Capital Partners -- Analyst

Great. Thank you, Longgen. You know, I think on the Q4 call you talked about being 72% booked for 2020 production and perhaps leaving 10% to 15% for the spot market. Where are you now with after being done with Q1 and through much of May?

Longgen Zhang -- Chief Executive Officer

Okay. Our first pipeline still is very good. Today, our sales contract, if account our sales book, inventory is a negative 3,010, OK. And basically, I -- this month our most -- the big clients are Longi is shipping over our original long-term contracts. So sales is not, to us, is not big issue, OK? The big issue is the price. Then also -- we also under annual maintenance one by one by routine on the production line, we have five production line. So basically, if you look our guideline, we still at full capacity running besides that the maintenance production line, and we still sell everything. So we will make efforts to meet the end inventory by the Q4 is [Indecipherable]

Philip Shen -- ROTH Capital Partners -- Analyst

Okay. Got it. And can you comment about the inventory in the downstream? How much polysilicon inventory is with your clients? I know you -- it sounds like you're selling everything, but is there oversupply from or too much inventory in the channel or the -- at your customers from other suppliers, for example?

Longgen Zhang -- Chief Executive Officer

Basically, Philip, I'm little -- maybe different opinion from you, the reason because you see, I think, the end market demand for module suddenly stopped. So Longi take advantage along with Jinko basically, OK. I think, maybe Tongwei together. They're going to actually -- their inventory, they're silicon products, we call it raw materials. So that's why, let's say, suppose for April contract we supposed to sign contract in March 20th. So they delayed sign contracts to make their inventory. So that's delay the contract. So if you look our operating cash flow, why the operating cash flow go down, because the advantage cash from our clients, especially Longi, the contracts we see delayed from March 20th delayed to April 15th. So we think right now the downstream especially our clients, the raw materials, especially silicon materials almost only one day or two days.

Like Jinko, almost three days then order from us, three days order from us. So basically, they right now keep a low inventory. I understand that the reason because silicon price continue to go down and also the downstream demand is weak or when they come -- I see, the market come back is uncertainty. So, I think at this moment I think silicon price essentially, I think, were hit by the demand aside, we are a chemical company continue production you see. So we see our competitors some -- our competitors to have inventory, but most of their inventory is multi-silicon, so is unsaleable. For mono silicon, it's not too much there, we know that. So we're very confident, I think, in third quarter, the silicon price, mono silicon price will come back.

Philip Shen -- ROTH Capital Partners -- Analyst

Great. That's really helpful color. Thank you, Longgen. One other one if you don't mind, what's your outlook for the -- your cost structure? You delivered a very strong Q1 cost structure. How much more can that come down in Q2? What do you expect it to be relative to Q1 and Q2, as well as Q3?

Longgen Zhang -- Chief Executive Officer

Okay. Basically, if you look our Q1 cost of goods sold almost dropped down $0.50, right, $0.51. I think, the majority of the cost go down is utility and electricity it's almost $0.31 go down. Then also the accessory materials like package, like the call is $0.13 per kg then also salary and wages $0.08 per kg. So you add up together.

I think for -- you have to remind you, Q1 is our full capacity running. The production almost 19,777 tons and Q2 we -- because of maintenance, we don't think the cost will continue to go down. Basically, the only item will go down in the Q2 is -- I think, the metal power -- silicon metal power -- powder, right. Yes, will go down. I think, the rest of them, I don't think will go down. So basically, I think Q2 the cost may be keep at the same or even slightly go up.

Philip Shen -- ROTH Capital Partners -- Analyst

Great. Thank you very much. I'll pass it on. Thank you, Longgen.

Ming Yang -- Chief Financial Officer

Great. Thanks, Phil.

Operator

The next question comes from Gary Zhou of Credit Suisse. Please go ahead.

Gary Zhou -- Credit Suisse -- Analyst

Yes. Hello, management. Thank you for taking my questions. So I have -- so my first question is on the demand side. So what does management expect for the China demand this year? And how much for the ex-China demand, and whether does the management have any expectation for next year? Thank you.

Longgen Zhang -- Chief Executive Officer

Okay, we are very prospect [Phonetic] in our -- I think in the solar industry. I think, I still very optimism on the Chinese market. The reason is because China maybe hurt by COVID-19 is January and February. And March -- at the end of March, almost all of the factories come back. I think the cast to connect the grid, I think by the end of June, rush to connected. I think, for China market, I think, this year definitely it will be around 40 gigawatts to 45 gigawatts. Even I think it will be higher. The reason is because the distributed -- I think distributed, I think, the solar power implement. I think it will go up.

For the rest of the world, the reason, because I think this COVID-19, you know, the -- or if you like US, European, when they come back, I think is uncertainty. Let's say, if US, European all the market to come back in May, end of this month or June, then, I think the industry will come back in the third quarter. So -- but I think for the rest of the world, beside China, I think this year maybe around 70 gigawatts. So for overall I think for all globally, I think this year maybe around 105 to 115, that's my range.

I think, next year definitely are very confident. The reason is because all these -- I think, virus the module prices continue to go down. If you see China right now selling module per watt is RMB1.4 to RMb1.6 per dollar and overseas even cheaper below the $0.20 per watt. The demand and the grid parity is there. So next year, I think definitely the globally, I think will be above 150 kilowatt. Gary, I think, that's my projection.

Gary Zhou -- Credit Suisse -- Analyst

Yes. Okay, thank you very much. And my second question is on the finance cost. I noticed that in the first quarter your company's interest expense was relatively higher on quarterly basis. So is there any reason behind that? And what is our expectation for the full-year? Thank you.

Ming Yang -- Chief Financial Officer

Okay. So there were two parts related to it. So one is from higher debt balance, and also with higher bank fees related to notes payable and notes receivables, Chinese bank notes. Also in the fourth quarter, because we were at the end of our construction period, so during construction interest cost related to new construction project we could capitalize part of it. But I think in Q1, the project is finished. So there has been no capitalization of interest in Q1, so that's the main difference. I think, going forward, interest expense will be approximately $5.5 million to $6 million per quarter run rate.

Gary Zhou -- Credit Suisse -- Analyst

Okay. Thank you. So my last question is on the capacity expansion. So, can management share with us whether there's any current plan for the expansion? And when we can expect to have further, kind of, clarity on that? Thank you.

Longgen Zhang -- Chief Executive Officer

I think for the 4A, you know we -- even though we right now run smoothly, I think still have some capex, I think, it didn't pay. I think around like MP, I think still have have like -- should be renminbi is around like RMB1 billion, right, unpaid. Well, sorry, I think around RMB600 million to RMB700 million unpaid. So basically are right now also, you know, we face that in Q2 the ASPs continue go down. We want to keep our balance sheet healthily, so we would not consider any expansion for this year. But as our financial statements continue to improve, yes, we will, you know, do revaluation to see whether we have to expansion into the 4B.

Gary Zhou -- Credit Suisse -- Analyst

Okay. Yes, thank you very much. That's all my questions. I will pass on. Thank you.

Ming Yang -- Chief Financial Officer

Great. Thank you, Gary.

Operator

The next question is from Jeffrey Campbell of Tuohy Brothers. Please go ahead.

Jeffrey Campbell -- Tuohy Brothers -- Analyst

Good morning, or I guess, good evening there. At high level your forecast from 2020 volumes was 73,000 million to 75,000 million tons. I was just wondering; first, how does this compare to your pre-COVID expectations; and second, do you have any sense of preliminary 2021 outlook again relative to pre-COVID expectations and the world we're in now. Thanks.

Ming Yang -- Chief Financial Officer

Okay. So actually the -- their production forecast has not changed before or after COVID in terms of total volume. I think, what we're doing is because a lot of the impact to the end market for polysilicon is very much in the near-term and we think the market will recover toward the end of this year -- in second half this year. So we actually conducting our annual maintenance a little bit ahead of our original plan, so that we're shifting production volume between quarters. So that in Q2 we'll be producing slightly less and then we'll produce more in the second half of this year, and so that's for this year.

And our total sales volume, we think will be similar to our production volume, because of the strong demand for our products in particular for our customer. And then, right now for 2021 our outlook is overall the end market demand is likely to improve significantly, compared to this year with market recovery. And so that, I think [Technical Issues] we don't have a concrete guidance for production. But right now based on our process optimization efforts, it should be higher than the production volume this year.

Longgen Zhang -- Chief Executive Officer

Also I just want to add a comment, OK, because at this moment we want their inventory by the end of Q2, even though the ASP continue to go down. We don't want to accumulate any inventory. So that's why we moved the annual maintenance, you know, ahead. So basically on Q2 -- Q3, Q4 the production capacity and output we come back to Q1. So that's why we keep a whole year guidance there, because we believe Q3, Q4 the ASP will come back.

Jeffrey Campbell -- Tuohy Brothers -- Analyst

That's helpful. And kind of thinking toward that recovery in demand, we are hearing both at the utility level and at the residential level that there's been some stress is showing up in financing, particularly in the US financing related to the various Safe Harbor and tax benefits. I'm just wondering are you seeing that? Is this something that you're watching closely and your view for solar coming back in the second half of the year, does this also include an expectation that there is not going to be major financing problems?

Longgen Zhang -- Chief Executive Officer

No, I think the US -- we consider US is the big market. Potentially, I think, Green Paris and also potentially I think the market is so big. But also you can -- you have to consider in the last year, over 1 gigawatt, almost 19 countries. So basically right now this industrial hit is by the virus, COVID-19 virus. So we believe, if this virus is gone, so the market will come back. If without this COVID-19, we think this year should be around like a 140 gigawatt, even 145 gigawatt. So basically we're very optimized the whole market, because module is so cheaper and so easy to install and to use. So basically, we are very confident, I think, the market demand for the -- starting from Q3 to Q4, even next year, because the module price also dramatically goes down.

Ming Yang -- Chief Financial Officer

And let me follow-up on your point. So I think if you look at end markets like Europe or Japan or China, so for these markets, the cost of credit or interest rate for debt financing for the projects are coming down. So there is excess liquidity in the market. So it's actually improved and then with the cost of solar modules and solar project coming down as well the yield for the solar projects are becoming more attractive.

I think, the issue you raised about, especially about, I guess, the tax credit market in the US, I think, we don't have too much color on that. But this is very general, I think, because this year with the economy, right? So a lot of the companies will have a reduction in profit, in reduction in taxes that they would need to pay. So generally, in this kind of market environment that the cost of tax credit will go up, right? So this actually would make monetizing these tax credits more expensive for the solar projects. I think, the flip side is that because and then you have the US Fed with the monetary stimulus that's keeping interest rate very low. So that could potentially offset some of these impacts, but I think that's a very specific issue to the US end market.

Jeffrey Campbell -- Tuohy Brothers -- Analyst

Okay. Great. I appreciate the color. Thank you.

Ming Yang -- Chief Financial Officer

Great. Thank you.

Operator

The next question comes from Alan Hon of JPMorgan. Please go ahead.

Alan Hon -- JP Morgan -- Analyst

Hi. I have questions -- follow-up questions on cost. Firstly, congrats on a very solid cost control in first quarter. Understand that the second quarter production cost may go up a little bit as US cutting down production. But in -- assuming likely ramp up to full capacity in third and fourth quarter this year, I mean, how much more room like do we have on cash cost going down or further cost improvement on the cash cost versus that of the first quarter level?

Longgen Zhang -- Chief Executive Officer

Hey, I think, to answer your question, if you look our Q1 cash cost is $5, I think renminbi is around the RMB35. Basically we believe, OK, for the materials for the silicon metal powder with all long-term contracts. So we still have some room continue to improve, especially, I think I silicon metal -- silicon powder the price we see is continue to go down. But for the utilities, we don't think any more room to improve. The only thing I think we can improve is the salary and wages. So basically $5 if we continue in Q3, Q4 we can do improve, maybe, I think I have like 5% room to improve, basically, frankly speaking.

This all depends on silicon powder continue go down. Silicon powder today I think accounted for almost RMB4.45 per kg -- RMB13.32 per kg, around $1.91 out of my cash cost of $5. So is number one cash cost is around -- accounted for 32.6%, electricity only accounted for 28.7%.

Alan Hon -- JP Morgan -- Analyst

Got you. And thank you for the color. Thank you.

Ming Yang -- Chief Financial Officer

Great. Thanks, Alan.

Operator

Your next question comes from John Segrich of Luminus. Please go ahead.

John Segrich -- Luminus -- Analyst

Hey, guys. Just -- wanted just to make sure I've got the housekeeping things right. So what is the total capex that you're expecting for 2020? And how much of that is maintenance capex? And then, is there any remaining capex that has to be paid for the expansion in 2021 that we should be modeling? And then I've got two more follow-ups, if I can.

Ming Yang -- Chief Financial Officer

Okay. So actually I think due to the COVID-19 situation and the impact to the market, so we're actually controlling our finances very carefully and strictly, and we're actually extending the payment schedule for lot of our suppliers, particularly related to capex. So for this year, the total capex is expected to be approximately $75 million to $85 million total. And of that, about $15 million to $20 million is for, you can call it maintenance capex. But a lot of it is for project upgrades and the rest is for, mostly for project 4A. And for next year then there is another about $50 million to $60 million of capex related to project 4A.

John Segrich -- Luminus -- Analyst

Okay. And is that on top of any amounts that are included as payables for PP&E, just to be clear?

Ming Yang -- Chief Financial Officer

It's inclusive. It's within the payables.

John Segrich -- Luminus -- Analyst

Within the payables, OK.

Ming Yang -- Chief Financial Officer

So the payables are actually are contractual payment obligations. But we are able to negotiate with our equipment suppliers, due to the current market situation.

John Segrich -- Luminus -- Analyst

Okay. And then I know you gave a lot of figures, kind of, around percentages of everything, but I think you said electricity usage per kg was down about 7%. So what are you kind of down to about per kg now?

Ming Yang -- Chief Financial Officer

So we're around 66-kilowatt hour per kg today.

John Segrich -- Luminus -- Analyst

Okay. Was there anything in particular that allowed you to make that big sequential reduction? That's quite a big improvement.

Ming Yang -- Chief Financial Officer

Yes. So it's truly process optimization where we've optimized our process, so that we could reduce our electricity usage relative to that we've done in the past, also the equipment. So I think if you remember the Phase 4A projects now have either 72 or 80 ROS reactors, whereas our older reactors where maybe, for example 48 rod in the past. So just these longer reactors also have more efficient usage electricity and for our front-end process, as well with our new capital equipment. So that allowed our LOE reduction.

John Segrich -- Luminus -- Analyst

Okay, so unit price go down?

Ming Yang -- Chief Financial Officer

And then also our electricity costs came down as well.

John Segrich -- Luminus -- Analyst

Okay. So where is that now?

Ming Yang -- Chief Financial Officer

We cannot disclose specific numbers, but overall it declined approximately 10% Q-over-Q.

John Segrich -- Luminus -- Analyst

Okay.

Longgen Zhang -- Chief Executive Officer

We can tell him the total is per kg, the average is the electricity consumption is 66 kWh and our cost is RMB11.75 per kg. So calculate it by yourself the unit cost.

John Segrich -- Luminus -- Analyst

Okay. And then, last one, I know at the end of 2018 you guys acquired a subsidiary company Daqo Investment, I guess?

Ming Yang -- Chief Financial Officer

Yes.

John Segrich -- Luminus -- Analyst

And I think you have $18 million or $16 million or had $16 million to pay for that. What does that company do and what was the point of the acquisition?

Longgen Zhang -- Chief Executive Officer

I think -- OK, let me just reflect you, OK. The Daqo Investment company is owned by the Group. The reason is because the company buy a piece of land through the two -- I think one dormitory for our employee to login, OK? A building actually like the employee login facilities. So at that time we need investment, need to constructing the building. So we don't want to touch the business. So Daqo Group, I think, invested money, in a investment company.

Then I think in 2019, because we want to go -- I think, domestic third -- we call third Exchange -- for the User Exchange Board [Phonetic]. So we have to change the Xingjiang plant, the company -- limited company, energy limited company, 1% is selling to this company. So this company also own 1% of the Xingjiang power facilities, OK? So then later because the -- we will [Indecipherable] from the new third Board. So we buy back this company, OK, with 1% ownership, plus the building, the employee building. So that's why the part of evaluation you see the $60 million that you're talking.

John Segrich -- Luminus -- Analyst

Okay. All right. Great, that's helpful. Thank you. Okay, that's all. Thanks, guys.

Ming Yang -- Chief Financial Officer

Thank you.

Operator

The next question comes from Colin Yang of Daiwa. Please go ahead.

Colin Yang -- Daiwa Securities -- Analyst

Hi. Thank you, management. This Colin from Daiwa. I got a follow-up question on polysilicon price. Understood Mr. Zhang said that we expect to recover in price in the third and the fourth quarter this year, probably due to the recovering of global demand. But on the other hand, our major trends that we reproduces including LONGi, Jinko, it was still in the middle of the price war or wafer [Phonetic]. So wafer price is likely to keep dropping in the second half, despite a recovery in global demand. So do you think it is still likely to see the polysilicon price goes up even the wafer price were keep dropping? And do we feel a lot of the price cutting pressures from the wafer producers. Thank you.

Longgen Zhang -- Chief Executive Officer

Okay. To my concern is because I think LONGi, Jinko the downstream major player use to take the advantage of that virus situation to zero their inventory. Then besides that there may be on the supply side, demand side on the wafer side, the price continue to go down. So push, I think, the silicon price continued go down, because silicon we manufacture factory silicon perpetual, it's a chemical company. For example, if LONGi supposed to sign contract with us for April, should it be signed the contract in March 20th, if they move to April 15th, so almost one month delay so cause the demand and supply total has changed the situation. So that's why I think today the mono silicon price go down.

But you have to consider that if, let's say, the import silicon from OCI from Waka almost become zero, then the domestic mono silicon supply is there, it's not too much there, OK. Even though some player have inventory -- majority of their inventory is the multi-silicon, is not unsaleable, multi-product, OK. So we believe as far as the demand come back, the downstream module majority right now even I think 90% in the module is mono module. So then as the wafer capacity continue full capacity running also expansion, we believe silicon price definitely will go up.

Today, if let's say under -- excuse me, if on today it is $7.20, how many silicon company can make a profit? Because, if we -- our ASP is a little higher, really because we're 95% of our product is mono silicon, only 5% is multi-silicon. We even use partial 50% of multi-silicon to produce our own core. So basically if you looked at today's price, a lot of company -- most the company is lose money. Even Daqo maybe Q2 you can calculate and our gross margin may be deteriorated you see and the bottom line maybe I think is up and just above the deal.

Colin Yang -- Daiwa Securities -- Analyst

Understood, understood. Okay, the second follow-up question is still about our financing expense, because our total interest borrowing debt was just up like, sort of, 8% year-on-year from 1Q '19 to 1Q '20. However, our interest expense was like up by over 200%. Understood, Mr. Yang was explained late some partially because of higher banking fees. So I want to learn if we can share the exact net interest rate from 1Q '19 to 1Q '20? Thank you.

Ming Yang -- Chief Financial Officer

So, the interest rate currently is roughly 6% per annum on our debt balance. And actually for last year, I believe it was similar as well. So the interest rates haven't really changed. Maybe it came up slightly, because we have higher amounts of longer term duration debt for our capital project, which carries a higher interest rate.

Longgen Zhang -- Chief Executive Officer

I think -- yes the short-term banking loan average cost is 5.5%. The long-term, I think, fixed asset loan is around $5.60 per annually.

Colin Yang -- Daiwa Securities -- Analyst

All right. Thank you, management. That's all my questions.

Longgen Zhang -- Chief Executive Officer

Yes, I know, I think, yes, the banking loan is probably around $265 million. I think, the temporary reason because if you in the rush pay payments on the Q4 -- 4A project, but step by step as the cash continue to flow from operating side, I think the interest, I think expenses should be keep a run by $5 million to $5.5 million, I think, per quarter.

Colin Yang -- Daiwa Securities -- Analyst

I see. I see. Thank you.

Ming Yang -- Chief Financial Officer

Great. Thank you.

Longgen Zhang -- Chief Executive Officer

Thank you.

Operator

Next Question is from Sachin Shah, a Private Investor. Please go ahead.

Sachin Shah -- Private Investor -- Analyst

Yes, gentlemen, how are you?

Ming Yang -- Chief Financial Officer

Hello.

Sachin Shah -- Private Investor -- Analyst

The question I have is more due to the political tensions between the United States and China currently. I'm not sure if you're aware, but there is a new legislation going into the Senate today that basically would require Chinese companies to establish that they are not owned or controlled by the government. And that they would be required to submit to an audit that could be reviewed by the Public Company Accounting Oversight Board. How would that if that legislation was the path, would that -- how would that affect US investors ability to still invest with you guys here and wonder what are your view?

Longgen Zhang -- Chief Executive Officer

I think, first of all, I'm not comment PCAOB, US, what are they doing. But in the history, I think, in 2010, if you look back in the 2010, I think also some crisis, a lot of Chinese company, I think, from OTC at least to main exchange. Also I think a PCAOB also looking for what keeps from auditor. I think Chinese government at that time I think opened certain number of public company to let PCAOB review. I think, today, for example, like Daqo is almost listed in United States, New York Stock Exchange 10 years. So our book is, I think, sorry I think, auditable and transparency. So we're not afraid of that basically. And we support any I think visible -- any transparency, and because we are a public company and we have to follow the law. So no more comments on your question.

Sachin Shah -- Private Investor -- Analyst

Okay. No, that's fine. And then my bigger question is for the company in general over the next year or two as the solar industry, sort of, recovers as you elaborated on, what is Daqo look like a year from now in your estimation as a company?

Longgen Zhang -- Chief Executive Officer

I think, we -- OK, basically, today we almost account for the market share 15% on the -- I think, on the silicon supply on this PV industry up I think segments. So we definitely is the key player right now in this industry. As you can see, the silicon imported from overseas, I think from this year, almost gradually, I think, were to zero. So basically the Chinese silicon were substitute for the imports, the first.

Second is if you look at the PV industry in the future, I think definitely, I think is very I think optimistic. So we believe I think this industry will continue to grow and definitely, we also see our player, for example, the Asia company continue to expansion. But we were watching the market and we will do our -- I think, because we believe we were I think driven our experts. So basically, we will look the market to see whether we will continue to exchanging or not on the polysilicon side. Meantime, we also looking for both, I think, domestic or overseas opportunities. So basically we also doing other, for example, the special gas, other projects to see continue to increase our revenue avenues, you see and to -- I think, strategically to make I think, Daqo more strong to continue to grow on the revenue side and also on the cash statements.

Sachin Shah -- Private Investor -- Analyst

Okay. Great. Thank you, gentlemen.

Ming Yang -- Chief Financial Officer

Great. Thank you.

Operator

The next question is from Robin Xiao of CMBI. Please go ahead.

Robin Xiao -- CMBI -- Analyst

Thank you, management, for taking my question. My question is regarding about the capacity from the industry. So basically, a lot of factory is making same margins for the current price, but we did an upsurge lots of maintenance from May. So what do you see your competitors maintenance schedule with a focusing July or April, so I guess, what's the color for this peers capacity plan.

Longgen Zhang -- Chief Executive Officer

Okay. Basically I think if you look at today I think especially during the Q2 a lot of company even Q1, I see the ASP continue to go down a lot is actually already consolidation. So in China basically right now is the major five company is there. I think besides Daqo, Tongwei, TBEA, right? TBEA, New Horizon and also [Foreign Speech] GCL. I think that's the major player there. So if you look those five players, I think, New Horizon because of the quality issue and also the capacity only I think can achieve around the 40,000 tons to 50,000 tons. Then also they're going to go downstream vertically integrated. So basically, in the future, I don't think they are the competitors in the polysilicon segment.

Then GCL basically is the joint venture with Suntan. I don't think they were continue to expansion that facility around the 40,000 tons right now running. And basically the majority supply to Tongwei. Tongwei also buy some from us. So the only, I think, major three player is TBEA, Daqo and Tongwei. So today on the quality side, we are almost 95% is mono silicon and our competitive I'm not mentioning, OK, especially, I think, other two, they also have new, I think, new facility just opened last year. So production is not stable and also quality is not stable. I'm not go ahead you can call them to dig on the inventory, basically we right now the inventory almost is zero, OK. We sell whatever we produce. So basically in this market, right now today's price is the opportunity for consolidation. And I think also the good opportunities for our future. So after maybe Q2 even half of Q3, I think the survivors will enjoy the market.

Robin Xiao -- CMBI -- Analyst

So for maintenance do you see a lot of factories would choose to have their maintenance plans in July?

Longgen Zhang -- Chief Executive Officer

No, I think there are some plans. We know that they also move to second quarter, because second quarter right now, the selling price is so weak. So I believe I think some is more, some still will be in I think September, October. The reason is because the maintenance for the winter. So I think, I only can say maybe right now 50% of the company is annual maintenance right now happened in Q2, then 50% of will may be a cut in Q3, Q4 only Q4.

Robin Xiao -- CMBI -- Analyst

Okay, thanks. My final question is regarding about the monthly supply demand balance. So from the mono silicon products perspective, what do you see what's the monthly supply and demand balance in the market. If you can, would you please share in gigawatt basis also.

Longgen Zhang -- Chief Executive Officer

I think basically as the technology continue improve, you have to remember -- I remind you that per gigawatt wafer basically or per gigawatt whatever the downstream product, the consumed silicon is continue to go down, OK. If, let's say, two years ago maybe consumed 4.5 gram silicon per watt. So that's why the module price right now -- the module cost off the module cost silicon is not number one cost right now. The number one cost is glasses, OK. So basically we believe on the mono module right now per watt cost of silica is around like 3 grams to 3.2 grams.

So if your calculation, let's say, this year is around, let's say, I think if your calculation based on the wafer capacity, this year I think is around like a 135 kilowatt, OK? So that will consume I think around 400,000 tons of silicon. So per month, I think, it is around like 35,000 tons to 36,000 tons average speaking. But right now I think it maybe around 30,000 to 32,000 per month. That's the demand side.

The supply side, I think, OK, basically because of the -- I think, Q1 the COVID virus cost some small wafer plants shutdown. So then we are chemical company continue to running. So one of -- beside Daqo maybe other silicon producer have some inventory there. Then LONGi, Jinko when they in the March come back, they consider they want their inventory, the sale, the wafer price go down reduced to go down. So that's why they push the demand go down then supply still is there then push the price ASP go down today. Basically, I think our solar wafer is around 55 to 58. But I think this is, I think, almost the bottom. I don't believe we continue to go down further.

Robin Xiao -- CMBI -- Analyst

Thanks. One follow-up question about the inventory strategy from the downstream, you've mentioned a bit about Jinko and LONGi, they are trying to maintain very low inventory level for now. So they keep ordering for maybe two to thee days. So at what time point you think they will change their strategy. Could you please share any color on this?

Longgen Zhang -- Chief Executive Officer

I think, maybe by the Q3 when the module and the market come back, and I think the cell and the wafer demand is come back to normal and not only besides LONGi and Jinko also other company like [Indecipherable] Kenton, Honghai, all the companies running and the demand that will be I think are more. So, definitely, I think we have to keep accumulate some inventory.

Otherwise, their supply will be interrupt, we cannot -- I don't think they can keep it like this way. The reason because right now is not too much other players is doing small maybe players right now cut their capacity. But when all capacity is running, then also the wafer capacity expansion continue to going on for the next year, because people will see next year the potential market is there. So I think it will come back at least one week inventory. So the demand definitely will come back.

Robin Xiao -- CMBI -- Analyst

Okay. Thank you, management. I will pass on.

Ming Yang -- Chief Financial Officer

Great. Thank you.

Operator

The next question is a follow-up from Gary Zhou of Credit Suisse. Please go ahead.

Gary Zhou -- Credit Suisse -- Analyst

Hello, management. Just a quick follow-up question. So noticed that some of your key foreign polysilicon producers are currently under suspension. So just wondering when do you expect we may heard further, kind of, a final kind of capacity access on those companies? Thank you.

Longgen Zhang -- Chief Executive Officer

Welcome, Gary, you come back to your question. Basically, I think, walk, you already hear that. I don't think the major -- actually they forecast on the semiconductor polysilicon maybe have some byproduct continue to provide to the solar industry, but it's not too much is not number is not accountable. The only thing that I think maybe OCI, I think Malaysia, all right, Indonesia, Malaysia, I think plans as we know that Malaysia right now today we supplied Longi the selling price around the $7.20 we believe, OK? The Malaysia plans also is not compatible. So their capacity right now is around 30,000 tons. So that's the only right now the overseas, I think capacity is there.

Gary, is that answer your question? So then you also coming to -- I think, the silicon association, they have every month the imported figure, China imported silicon figure there. We can give to you if you want.

Gary Zhou -- Credit Suisse -- Analyst

Okay. That's quite helpful. Thank you very much.

Ming Yang -- Chief Financial Officer

Great. Thank you.

Operator

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

Kevin He -- Investor Relations

Thank you, everyone, again for participating in this conference call. Should you have any further questions feel free to contact us. Thank you and bye-bye.

Operator

[Operator Closing Remarks]

Duration: 68 minutes

Call participants:

Kevin He -- Investor Relations

Longgen Zhang -- Chief Executive Officer

Ming Yang -- Chief Financial Officer

Philip Shen -- ROTH Capital Partners -- Analyst

Gary Zhou -- Credit Suisse -- Analyst

Jeffrey Campbell -- Tuohy Brothers -- Analyst

Alan Hon -- JP Morgan -- Analyst

John Segrich -- Luminus -- Analyst

Colin Yang -- Daiwa Securities -- Analyst

Sachin Shah -- Private Investor -- Analyst

Robin Xiao -- CMBI -- Analyst

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