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Daqo New Energy Corp (DQ 0.81%)
Q3Â 2020 Earnings Call
Nov 23, 2020, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Hello, and welcome to the Daqo Energy Third 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 for Daqo Energy. 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 third 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 the market and operations, and then Mr. Yang will discuss the company's financial performance for the third 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 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 the preliminary view 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 go ahead.
Longgen Zhang -- Chief Executive Officer
Thank you, Kevin. Hello, everyone, thank you for joining our conference call today. During the third quarter of 2020, we successfully completed the annual maintenance and several technology improvement projects at our polysilicon manufacturing facilities. We resumed full production in August with excellent operational results.
For the third quarter, we produced 18,406 metric tons of polysilicon, among which approximately 97.7% was mono-grade. We continued our relentless drive to lower production cost and risk to record lower cost in Renminbi terms. During the third quarter, we completed our digital transformation project with a fully digitized manufacturing system that allow us to continuously improve our process control and analyze our manufacturing data, so as to achieve better results in system stability, manufacturing efficiencies, production cost and product quality in future.
As our facilities are now running with increased efficiency, we expected to achieve a higher production volume of approximately 19,500 metric tons to 20,500 metric tons in the fourth quarter, with a potential cost reduction by approximately 3%, as compared to the third quarter.
During the quarter, polysilicon ASPs increased rapidly due to the quick recovery in solar PV demand from both domestic and foreign markets. Our ASP was $9.13 per kg, a significant improvement from approximately $7.04 per kg in the second quarter. With robust market demand for mono-grade polysilicon, we expect our ASP to improve meaningfully in the fourth quarter as compared to the third quarter.
In recent weeks, because of strong solar module and installation demand, we began to see solar glass capacity shortage becoming a bottleneck for the solar industry and limiting module production. We expect the shortage of solar glass to ease over the coming months as additional solar glass capacity comes online. The temporary constraint on the industry's utilization rate will be removed, which eventually will increase demand for polysilicon.
Solar is now becoming one of the most competitive sources for -- sources of energy, even compared to traditional power generation methods. Globally, we are seeing strong momentum around the world in adopting and implementing renewable energy policies that would strongly benefit the solar end market. Last month, Mr. Xi Jinping, the President of China, announced China's initiative to scale up the national contributions to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060. We believe favorable policies benefiting solar will be implemented during the upcoming fourth five-year plan -- 14th five-year plan, driving a substantial increase in solar installations in China.
In addition, a growing number of countries and regions, including the most important economies in the world, have announced goals and plans to reduce carbon emission and widely adopt renewable energies. In particular, we are starting to see the trend of utility-scale solar generation combined with power storage providing base-load energy and replacing and displacing coal power plants. We believe this is the beginning of a long-term [Technical Issues] solar displacing traditional fossil-fuel based generation driven by both economics and renewable energy mandates. We are strongly committed to contribution -- contributing our efforts as a new -- as a raw material provider for mainstream solar PV modules and are fully confident we will benefit from this fast-growing market.
Now, I will discuss outlook and guidance for our Company. The company expects to produce approximately 19,500 metric tons to 20,500 metric tons of polysilicon and selling approximately 20,500 metric tons to 21,500 metric tons of polysilicon to external clients during the fourth quarter of 2020. For the full-year of 2020, the company expects to produce approximately 75,800 metric tons to 76,800 metric tons of polysilicon, inclusive of the impact of the company's annual facility maintenance.
Now I will turn the call over to our CFO, Mr. Yang, who will discuss the company's financial performance for the third quarter of 2020.
Ming Yang -- Chief Financial Officer
Thank you, Longgen, and hello, everyone. Thank you for joining our call today. Now, I will provide -- I will discuss our company's financial performance for the third quarter of 2020. Revenues were $125.5 million, compared to $133.5 million in the second quarter of 2020, and $83.9 million in the third quarter of 2019. The sequential decrease in revenue was primarily due to lower polysilicon sales volume despite higher average selling prices.
Gross profit was $45.3 million, compared to $22.7 million in the second quarter of 2020, and $18.1 million in the third quarter of 2019. Gross margin was 36%, compared to 17% in the second quarter of 2020, and 21.5% in the third quarter of 2019. The increase in gross margin was primarily due to improvement in production costs and higher ASP.
Selling, general and administrative expenses were $9.2 million, compared to $10.1 million in the second quarter of 2020, and $8.2 million in the third 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.
Research and development expenses were $1.7 million, compared to $2 million in the second quarter of 2020, and $1.2 million in the third quarter of 2019. R&D expenses can vary from period-to-period and reflect the R&D activities that took place during the quarter.
As a result of the foregoing, income from operations was $33.3 million, compared to $10.8 million in the second quarter of 2020, and $8.8 million in the third quarter of 2019. Operating margin was 26.6%, compared to 8.1% in the second quarter of 2020, and 10.5% in the third quarter of 2019.
Interest expense was $5.4 million, compared to $6.7 million in the second quarter of 2020 and $2.6 million in the third quarter of 2019.
EBITDA for the quarter was $51.6 million, compared to $26.8 million in the second quarter of 2020 and $19.7 million in the third quarter of 2019. EBITDA margin was 41.1%, compared to 20% in the second quarter of 2020 and 23.5% in the third quarter of 2019.
Net income attributable to Daqo New Energy shareholders was $20.8 million in the third quarter of 2020, compared to $2.4 million in the second quarter of 2020 and $5 million in the third quarter of 2019. Earnings per basic ADS was $0.29 in the third quarter of 2020, compared to $0.03 in the second quarter of 2020, and $0.07 in the third quarter of 2019.
Now for the company's financial condition. As of September 30, 2020, the company had $109.8 million in cash and cash equivalents and restricted cash, compared to $115.8 million as of June 30, 2020. As of September 30, 2020, notes receivable balance was $1.9 million, compared to $8.2 million as of June 30, 2020. And as of September 30, 2020, total borrowings were $271 million, of which $140 million were long-term borrowings, compared to total borrowings of $264.8 million, including $116.9 million of long-term borrowings as of June 30, 2020.
For the nine months ended September 30, 2020, net cash provided by operating activities was $71.1 million, compared to $101.6 million in the same period of 2019. And for the nine months ended September 30, 2020, net cash used in investing activities was $80.3 million, compared to $202.3 million in the same period of 2019.
The net cash used in investing activities in 2020 and 2019 was primarily related to capital expenditures on our Phase 3B and Phase 4A polysilicon projects.
And for the nine months ended September 30, 2020, net cash provided by financing activities was $1.1 million, compared to $76.6 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
We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Gary Zhou of Credit Suisse. Please go ahead.
Gary Zhou -- Credit Suisse -- Analyst
Hello. Thank you, management. Congratulations on the strong results. So this is Gary from Suisse. So firstly, I have three questions. So firstly, on your cost reduction guidance for the fourth quarter, down around 3% Q-on-Q. May I ask is it production cost or cash cost? And is it based on RMB terms or US dollar terms?
And then secondly, I noticed that in the third quarter this year, so basically, there was -- as per my calculation, around 4,700 inventory tie-up, if I simply calculate the difference between your production cost and the sales volume. And if we look at the fourth quarter guidance, your sales volume is around only 1,000 ton higher than your production volume. So may I ask, if it is company's strategy you think it is reasonable to pile up some inventory given the potentially very strong polysilicon demand in next year?
And then lastly, a quick question on the -- do you expected to sign more, kind of, long-term polysilicon contracts in the near future concerning recently we saw, kind of, some news from your peers, so basically people starting to secure their polysilicon supply for the next year also? Thank you.
Ming Yang -- Chief Financial Officer
Hello, Gary, thank you for your question. So this is Ming, the CFO. So regarding your question about the 3% cost reduction in quarter-over-quarter, so that would be all US dollar cost reduction. And I think, if you look at -- for this particularly -- particular quarter for Q4 relative to Q3, so they're actually two headwinds, so one is the US dollar exchange rate, so that moved significantly during the quarter. And also there's some increase in silicon -- mono-grade silicon costs. But even with these two increases, I think because of our increased manufacturing efficiency and especially reduction in our energy usage, so we still expect about 3% reduction in costs on US dollar terms, OK.
Okay, and then for the third quarter in terms of inventory, I think your numbers are fairly close to our actual numbers. Now, in every quarter, we use about 500 metric tons to 600 metric tons of our own polysilicon for manufacturing of silicon seed rods, which then we reuse in our production of polysilicon. So that's how we also keep our costs low. So I think that is refactored in. So I think if we include that impact, I think for Q4, overall, we expect to drawdown approximately 1,500 tons to maybe north of 2,000 tons of inventory. I think that's what we're seeing.
Now I think that the overall demand for mono-grade poly is strong from our customers. I think there is some impact from the glass shortage, which is impacting the overall industry utilization and then the module volume shipments. So I think, if there is no glass shortage, then I think there is going to be even better demand for polysilicon. But I think the overall transaction volume is very healthy for the industry currently. And I think for a long-term contract, Longgen will take this question.
Longgen Zhang -- Chief Executive Officer
Gary, I think for your second question about inventory, I think basically, we think right now -- I think even downstream we were -- expect in our capacity expansion so quickly, and we see the sign continue to demand in Q4. We've given guidance a little conservative, because we believe we can -- by the end of Q3, our inventory actually, yes, closing figure maybe about, you know, more than 5,565 tons -- metric tons. So basically, what I want to say is we will sell, I think more than our production, and it's possible move some capacity to next year, and for high ASP and also for stock market value -- we see evaluation.
Secondly is for long-term contracts. So far, we have long-term contracts with three clients, and one is LONGi, one is Shangji and one is Jinko. And all three we collect, you know, the deposits from 3.5% to 6%. So I think, we will continue to sign one or two long-term contracts and cover three years I think supply. We know that a lot of clients right now want to sign a long-term contract with us, especially because from now on to end of next year, no more additional adding capacity is up, but the demand is continued to increase. So basically, we have two conditions is -- one is if you want to sign a long-term contract at least three years and the quantity may be starting lower in next year then higher maybe 2023 or 2022. Second is we have to collect at least right now, I think 4% deposits from long-term contracts. Otherwise, we'll not sign those contracts, because we want to lock the quantity, so we have to collect the deposits. So yes, answered your question, Gary?
Gary Zhou -- Credit Suisse -- Analyst
Yes. Thank you very much management. So maybe, if I may and just very quickly follow-up on the first question. So if I calculated the exchange rate, I think that in fourth quarter, the R&D may appreciate versus US dollar by roughly around 3% to 4%. So is it fair to say that in RMB terms, we are expecting around almost 7% Q-on-Q cost reduction in first quarter? And so -- and what is our, kind of, expectation of our further cost reduction into next year? Okay, thank you.
Longgen Zhang -- Chief Executive Officer
I think, Gary, if you look, our Q3 basically right now, because renminbi continued to appreciation, so our -- the -- I think cash cost is $4.88, compare Q2, I think is $4.87, $0.01 adding. So for dollar, yes, it go up, but for the renminbi, actually, our cash cost is RMB33.75 per kg compare Q2's RMB34.53 per kg. The production cost, cost of goods sold, I think, renminbi is RMB40.3 per kg compare Q2's RMB41.04 per kg. So basically, yes -- what I want to say is 3% continued to go down, maybe combined with our renminbi, I think cost continued to go down, then with maybe possible foreign exchange, I think renminbi appreciation.
Ming, do you have any?
Ming Yang -- Chief Financial Officer
Yes. Gary, you're right. So I think for Q4, if you look at what our expectation is that in terms of RMB terms, we expect roughly a 7% reduction in cost. That's correct.
Gary Zhou -- Credit Suisse -- Analyst
Okay, yes. Thank you very much. Yes, that's all my questions. Thank you very much management, and I'll pass on.
Ming Yang -- Chief Financial Officer
Great. Thank you.
Operator
The next question comes from Alan Hon of JPMorgan. Please go ahead.
Alan Hon -- JPMorgan -- Analyst
Hi. This is Alan from JPMorgan. I have like two minor questions on the ASP side of things. Because like on the third quarter, I guess, still your average like ASP or selling price was around like $9.13 per kilogram, but that's slightly lower than what we have been seeing on the spot market, so I'd like to understand why? And small follow-up questions on this one is, what's the price outlook for price to be realized for Daqo in the fourth quarter? And I guess like also along the prices, like what is the pricing outlook for 2021? And that's my questions.
Longgen Zhang -- Chief Executive Officer
Okay. I think basically -- if maybe Ming can continue adding up. If you look our Q3 ASP, actually is $9.13 per kg, also which I think because of the mono-grade, I think we are selling is 13,278 tons, so currently 97%, so $9.23, then rest of them is I think, 3% is the -- around 360 metric tons, I think is the selling price is around like a $5.60. So basically, if you compare -- the reason is because this is ASP, OK. If you look at the renminbi cost, the selling price is $71.42 [Phonetic]. The reason why because in Q3, if you look at July and August, your selling price is not immediately come back match the industry guidance. The reason is because most July and August, you already signed the contract before, you deliver on those months.
So actually Q3, you enjoy the higher price, maybe only in September and partial is August. So that's why in Q4, our ASP was dramatically increased higher than Q3. Meantime, the costs were down -- continued to down 3%, so the gross margin in Q4, you can imagine, I think at least around 10% improved.
Ming Yang -- Chief Financial Officer
Yes. So, Alan, thanks for your question. So because of our order contracting, so the time from when we sign the orders and to when the products are then shipped and then delivered to the customer recognized as revenue. So there could be two to three weeks lag. So for example, most of our revenue that was recognized for the month of July actually, these contracts or pricing were determined around the end of June when pricing was still...
Longgen Zhang -- Chief Executive Officer
Lower.
Ming Yang -- Chief Financial Officer
Fairly low. Yes, so really -- the price normalization really happened for the month of August and for the month of September. But when you average out that the prices, then it is a little bit lower than what the industry market -- spot market pricing is. Yes, so there is that lag. But I think by Q4, this will have normalized.
Alan Hon -- JPMorgan -- Analyst
Got you. And the last follow-up is on the pricing outlook in 2021?
Longgen Zhang -- Chief Executive Officer
Okay, basically right now, just like you mentioned, we only -- in mono-grade silicon, right now we just -- I think the highest price is a small partial of what you call it, Yang, [Foreign Speech] reimport, the price -- the highest, OK. Basically right now, I think is around -- the industry guidance right now is around RMB85 to RMB86, and we believe because of the shortage of glass, the module right now, production is limited. So we believe, OK, by the end of this month -- this quarter, maybe the selling price mono-grade is around like RMB84 to RMB86 the range, even RMB82 to RMB86.
Alan Hon -- JPMorgan -- Analyst
RMB per...
Longgen Zhang -- Chief Executive Officer
All is RMB. So for the next year, we believe OK, in Q1, maybe even China is maybe -- Chinese New Year, but we think the -- out of China, the market has come back, so we still believe I think Q1, the selling price around RMB82 to RMB85 and even higher. But in the second quarter, because the -- I think the glass increased, I think maybe 40% the capacity. So it's no way to limit the market for the demand for the module. And we believe the price silicon -- because silicon supply is limited -- is there -- stable, I think as demand is continuing to increase as the wafer capacity continue to increase. And we believe in the second quarter -- third quarter, the silicon price were about RMB90, even above RMB100. So basically, for 2021, we believe the ASP were between RMB90 per kg to RMB100 per kg.
Alan Hon -- JPMorgan -- Analyst
Got it. I guess like on the technology front, I guess just got one more last follow-up question on the technology front, like some of your competitors is talking about like FBR Technology. Just want to get your sense on the threat of FBR technology?
Longgen Zhang -- Chief Executive Officer
I think FBR, I think only one of the company in China right now, I think still stick on that, it's the MEMC Technology. Basically, I think FBR, due to the quality still contains the higher percentage of hydrogen and carbon. So determining the product still lower quality is classified as multi-silicon, so the selling price also lower. And we don't believe -- I think maybe is a supplementary to high-quality polysilicon made with the modified Siemens process. I don't think they were maybe only -- maybe supplementary 5% in the future. But right now, because the cash cost still higher around the RMB47 and RMB50 and -- but selling price lower. Secondly, is we believe I think one of the company right now is -- I think, take advantage of the local subsidized continue to expansion their capacity. But it's no way from cost-effective FBR will replace, I think Siemens Masters the polysilicon.
Alan Hon -- JPMorgan -- Analyst
Got it. And I guess, I will pass from here, and thank you very much for your answer.
Longgen Zhang -- Chief Executive Officer
Thank you.
Ming Yang -- Chief Financial Officer
Okay. Thank you, Alan.
Operator
The next question comes from Philip Shen of ROTH Capital Partners. Please go ahead.
Philip Shen -- ROTH Capital Partners -- Analyst
Hey, guys, thank you for taking my questions. The first one is on the outlook for 2021 volume. I know you're not providing official guidance, but the run rate you're looking at or we're looking at for Q4 is about 20,000 metric tons per quarter. Factoring out maybe two weeks of maintenance, do you think you can get to 80,000 as a baseline for next year? Or do you think there is possibly some upside to that?
Longgen Zhang -- Chief Executive Officer
Basically, it's not the timing for us to give any guidance for -- I think 2021. We will give any guidance in next I think earnings call. And -- but your, I think projection is correct, because basically, we were not adding more capacity to underline, but we'll continue to improve. And I think the ties the manufacturing system, we reach that figure, you mentioned, so yes.
Philip Shen -- ROTH Capital Partners -- Analyst
Okay. Thank you, Longgen. As it relates to capacity expansion, I can imagine the China listing is important for that. And just wondering to check in on how you're thinking about capacity expansion with pricing. As you mentioned possibly in that RMB90 kilo gram to RMB100 per kilo gram. What do you think the timing could be on a decision and for capacity expansion? And remind us what that next amount of capacity could be?
Longgen Zhang -- Chief Executive Officer
Thank you, Philip. I think it's a good question. I think first of all, I think we are actually making efforts trying to speed up accelerate our processing of listing in stock market. I think so far -- I think we can -- we cannot give -- given the timing table, but we believe we can listing in stock [Phonetic] market before the end of the Q1 2020, that I think IPO proceeds will give us the opportunity to continue to expansion 4B in Shihezi. So the 4B, I think is 40,000 tons -- metric tons, we believe, because we are restarting our design and the main key equipment's I think contracts and the bidding system. So we are planning, I think maybe starting trial production before the end of next year, and definitely, we were -- I think starting -- I think full capacity running the 4B in Q1 2022. So I think that 2022, there we're adding more, I think the capacity given us the output to meet the market.
Considering right now at the -- I think, downstream, especially the wafer capacity expansion as you see that by the end of this year, China maybe around 160 gigawatts, I think wafer capacity, by the end of next year is around more than 300, I think gigawatts capacity that's, you know, mean need, I think, silicon around 100 metric tons. But so far, didn't have too much real player. Our competitor to declare, I think, capacity expansion on the silicon side. The only Tongwei -- so two plants, I think 80,000 tons. Then we are I think in the stock market processing, we also declared, we will use the proceeds to invest in our 4B expansion, that's 40,000 tons and plus Asian silicon also declare is around maybe 30,000 tons.
So basically, next year is no more silicon capacity is adding. So for the year 2022, only around 150,000 tons capacity adding up. But the demand side is very hot. So that's why we're thinking, if the market continue to drive compound, maybe 30 to 40 growth maybe by the end of the products module installation, we believe even year 2022, silicon price can continue still it can keep a little higher price level.
Philip Shen -- ROTH Capital Partners -- Analyst
Great. Thank you for that detailed answer. Wanted to just ask about a comment you made on metallurgical-grade silicon. I think, Ming may have made that comment that it's a little bit higher now. Can you talk about why it's higher? How much higher it is versus maybe a quarter ago? And then what is the trajectory ahead, and do you expect some relief? Or do you think that there should be -- there might be tightness in that raw material as well for some time ahead? Thanks.
Ming Yang -- Chief Financial Officer
Okay. Phil, so a couple of factors are impacting the metallurgical-grade silicon pricing, so one is supply and demand. I think, because now we're pretty much in overall economic recovery, particularly for China, and so demand, for example, for silicones is improving and for other products that use metallurgical-grade silicon is also improving as well. So overall, demand is rising. And then in terms of supply, because winter is usually the season where the production is a little bit seasonal, so we're seeing some increase in the price right now, it's roughly 5% to 7% higher than the previous quarter Q-over-Q increase. But I think we can absorb that into our cost and we're still forecasting a cost reduction for next quarter, because of improved manufacturing efficiencies.
Philip Shen -- ROTH Capital Partners -- Analyst
Right. Thanks, Ming. So do you expect this to be relieved starting in Q2, the pressure there from metallurgical-grade silicon? Or do you think it's by Q1, it's still winter from most of it? So if it's seasonal, I'm guessing it's due to lower water levels...
Ming Yang -- Chief Financial Officer
Yes.
Philip Shen -- ROTH Capital Partners -- Analyst
As a result of -- and needing hydro for the production? Yes, go ahead. I'm sorry.
Ming Yang -- Chief Financial Officer
Yes. That's absolutely, right, yes. So we think probably Q1 will maintain the current level of costs in Q4, and then price would come down in Q2.
Philip Shen -- ROTH Capital Partners -- Analyst
Okay. Okay, good. Okay, I think that's it for me. I'll pass it on. Thanks.
Ming Yang -- Chief Financial Officer
Great. Thank you, Phil.
Longgen Zhang -- Chief Executive Officer
Thank you.
Operator
The next question comes from Tony Fei of BOCI Research. Please go ahead.
Tony Fei -- BOCI Research -- Analyst
Hi, management. This is Tony Fei from BOCI. I have three questions. First one regarding your long-term contract. So we know that your long-term contract typically only lock in the volume, not the price. And in the last September, we do notice that you can't rely on the pricing with one of your wafer customer. So are there any financial consequences of this, kind of, delayed procurement? And do you think it will happen again in the future? This is the first question.
And second is on the product mix. So this year we noticed that some of the cell manufacturers, they announced some new plans to ramp up the HJT capacity in 2021. So when that comes true, there will be new demand for the N-type polysilicon. So I just wondering, if you can give update on your certification process for the N-type polysilicon with the wafer manufacturers.
And third is a housekeeping question. As you have paid down some of your debt in the third quarter, so will do -- continue to do that given your strong operating cash flow? Thank you.
Longgen Zhang -- Chief Executive Officer
Okay. First of all, for your first question about long-term contracts. Most of the long-term right now today China is not -- the price is not locked, only the quantity. Even our competitors, even have to collect I think the deposits -- lower deposits. But to us, I think you can see, we already signed three long-term contracts. We collected deposits from 3% to -- 3.5% to 6%. The reason why we continue to stick on that, because we think with certain high -- a little higher percentage of deposits can guarantee the quantity -- the contract can be stick on that can deliverable. So that's I think our purpose.
Even though I think one of our long-term contracts that you see in the history in this year and some months may be delay and sign contracts, they still I think come back. For example, one of our clients didn't sign in September, so that's why our inventory jump up, and -- but they still I think come back, book additional one month in fourth quarter. So basically, I think is a long-term relationship, and yes, from contract side, we have the right to if they do not book -- take the contract, the quantity of silicon, we can -- supported their deposits. But all these clients is long-term, we'll not do that. So basically, I think -- for us, I think, if we collect enough deposits, we think we can still stick on the contracts and the contracts, I think basically, the price is determined by -- I think of the industry guidance, and then sign each month even right now, two weeks, we sign -- maybe sign contracts with the clients.
Second question about the HJT. HJT, I think is the -- I think the cell production for N-type cell. Basically right now, the import HJT equipment's is almost 4 times cost than the PERC Technology, so it's not cost-effective. So basically right now, China today, everyone right now try to domestic manufacturing N-type or you call HJT cell production. For example, I think one of our clients, I'm not mentioning is listed in US, they call HBT. So the HBT, they also still produce N-type cell, but I think the efficiency and maybe only increased a 0.5% or 0.7% and that to compare with HJT increased almost 1.5% to 2%. So HJT right now, I think they cost like 1.5 times the cost of -- for I think, PERC. So that's why right now is workable, so -- but they do not specifically buy N-type silicon from us. They just -- because we supply all, right now, P-type data select from our raw material to some N-type to manufacturing right now 800, I think, megawatts, I think, the HJT N-type cell.
But for the future, yes, definitely, I think if HJT, the equipment's can domestic manufacturer, the cost to continue to go down, the cost-effective is sure, then N-type silicon will be -- demand will be more. Today, actually our silicon production, I think, of which, almost 30% to 40% is N-type, but we cannot selling N-type in separator delivery. Only one client is SunPower, I think designated one of Chinese company right now. I think every month, two-shifts -- two cotton, I think, N-type. So today, N-type, the ASP compare the P-type, only RMB2 per kg difference. So in the future, hopefully, I think you know, as the HJT equipment's continue to, I think, installed and adding, so N-type silicon will continue to demand -- can increase, then the price differentiate between N-type and P-type silicon were difference can become large.
For the third question about the debt. I think so far, I think if you look our EBITDA, I think for the third quarter, even for the fourth quarter, which dramatically increased. So basically from now on, our target is to continue to improve our leverage -- reduce our leverage ratio, I think to pay off some 4B, I think expansion payments, then also to reduce the banking loans. And basically, I think, as I mentioned, the stock market value, I think today in China valuation is higher than the US market, basically. And we are making efforts to listing in stock market, we believe, I think you know, we can raise enough money to expansion Phase 4B, even more money to expansion for another in our new 40,000 tons, I think, facilities in somewhere we're looking outside of Xinjiang.
So, Tony, did I answer your question?
Tony Fei -- BOCI Research -- Analyst
Okay, great, Longgen. Thank you for the [Indecipherable]. Yes, thank you for the color, appreciate it.
Ming Yang -- Chief Financial Officer
Okay. 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
Yes. Thank you, everyone, again for participating in today's conference call. Should you have any further questions, please don't hesitate to contact us. Thank you, and bye-bye.
Operator
[Operator Closing Remarks]
Duration: 46 minutes
Call participants:
Kevin He -- Investor Relations
Longgen Zhang -- Chief Executive Officer
Ming Yang -- Chief Financial Officer
Gary Zhou -- Credit Suisse -- Analyst
Alan Hon -- JPMorgan -- Analyst
Philip Shen -- ROTH Capital Partners -- Analyst
Tony Fei -- BOCI Research -- Analyst
