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DATE
Tuesday, Aug. 26, 2025 at 8 a.m. ET
CALL PARTICIPANTS
Chairman and Chief Executive Officer — Xiang Xu
Deputy Chief Executive Officer — Anita Xu
Chief Financial Officer — Ming Yang
Director of Investor Relations — Jessie Zhao
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RISKS
Gross margin was negative 108% for Q2 2025, reflecting continued market prices below cash cost levels and persistent operating and net losses.
Net cash used in operating activities (GAAP) reached $105.4 million in the first six months of 2025, indicating ongoing cash outflows from core operations.
Management stated that, "selling below cash cost is unsustainable and very detrimental to the overall industry development," underscoring acute industry and regulatory pressures.
TAKEAWAYS
Revenue-- $75.2 million in revenue for Q2 2025, down 39% from Q1 2025 and 66% from Q2 2024, primarily due to lower sales volume.
Sales Volume-- 18,126 metric tons, down from 28,008 metric tons in the first quarter of 2025 as Management intentionally curtailed sales below production volume.
Production Volume-- 29,012 metric tons in Q2 2025, above company guidance but exceeding sales volume by over 10,800 metric tons as management adjusted its sales strategy in response to low prices.
Gross Loss-- Gross loss was $81.4 million in Q2 2025, compared to $81.5 million in Q1 2025, with gross margin (GAAP) worsening to negative 108% from negative 65.8% sequentially.
Operating Loss-- Loss from operations was $115 million in Q2 2025, up slightly from $114 million in Q1 2025; Operating margin deteriorated to negative 153% from negative 92% sequentially.
Net Loss Attributable to Shareholders-- $76.5 million in Q2 2025, up from $71.8 million in Q1 2025; Adjusted net loss was $57.9 million for Q2 2025, excluding non-cash share-based compensation.
Cash Position and Liquidity-- $599 million in cash as of June 30, 2025, $418.8 million in short-term investments as of Q2 2025, $49 million in notes receivable as of Q2 2025, and $960.7 million in fixed-term deposits as of June 30, 2025, with no financial debt outstanding.
Share Repurchase Authorization-- Management announced a new $100 million share repurchase program, effective immediately through year-end 2025.
Cost Structure-- Sequential cash cost per kilogram fell 4% to $5.12 in Q2 2025, Total production cost per kilogram decreased 4% sequentially to $7.26 in Q2 2025, with further production cost improvement expected.
Utilization Rate-- Maintained in the 30%-35% range with future rates subject to demand, regulatory action, and industry consensus on supply discipline.
Inventory Strategy-- Management intends to maintain healthy inventory levels and reduce stockpiles once policy clarity and pricing mechanisms are established.
Polysilicon Pricing Trend-- Spot and futures prices rebounded sharply in July 2025, reaching as high as RMB55 per kilogram from RMB30 per kilogram in June 2025, attributed to regulatory developments and improved industry discipline.
Government/Industry Action-- Chinese authorities introduced draft price law and convened industry meetings to address overcapacity, enforce pricing above production costs, and support industry consolidation via an SPV to buy out outdated capacity.
Guidance Update-- Full-year 2025 production volume is projected at 110,000–130,000 metric tons, with management indicating ongoing reductions in utilization to match market demand.
SUMMARY
Chinese regulatory authorities are intensifying actions to eliminate destructive price competition and enforce sales above production costs, leading to a sharp rebound in polysilicon prices and futures contracts in July 2025.Daqo New Energy(DQ -2.22%) is participating in policy-driven discussions for industry consolidation, including an SPV mechanism to buy out excess capacity and further stabilize pricing.
CFO Ming Yang noted, "we expect to be generating cash from our sales," despite ongoing non-cash depreciation linked to idle facilities.
Management emphasized active hedging in the polysilicon futures market as a tool to manage pricing volatility and inventory risk.
Deputy CEO Anita Xu stated, "We are quite optimistic about that because that's what the industry should be, and that's good for the overall development of the industry"
Management reported that sales will only occur at prices above cash costs, with further inventory reduction depending on finalized regulatory policies and spot price evolution.
INDUSTRY GLOSSARY
SPV (Special Purpose Vehicle): A legal entity created to acquire and hold specific assets or liabilities, in this context proposed to buy out excess or outdated solar PV production capacity as part of industry consolidation efforts.
Polysilicon Futures Market: An exchange-based marketplace for standardized contracts obligating the delivery of polysilicon at a set future date and price, used for hedging and price discovery by manufacturers and industry participants.
Idle Facility Costs: Fixed non-cash operating expenses, such as depreciation, incurred when manufacturing capacity is underutilized due to reduced production or sales.
Full Conference Call Transcript
Operator: Good day and welcome to the Daqo New Energy Corp. Second Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Jessie Zhao, Director of Investor Relations. Please go ahead.
Jessie Zhao: Hello, everyone. I'm Jessie Zhao, the Investor Relations Director of Daqo New Energy Corp. Thank you for joining our conference call today. Daqo New Energy Corp. just issued its financial results for the 2025, which can be found on our website at www.dqsolar.com. Today, attending the conference call, we have our Chairman and CEO, Mr. Xiang Xu, our Deputy CEO, Ms. Anita Xu, our CFO, Mr. Ming Yang, and myself. Today's call will begin with an update from Mr. Xu on market conditions and company operations, followed by a translation from Mr. Xu for Mr. Xu. And then Mr. Yang will discuss the company's financial performance for the quarter.
After that, we will open the floor to Q&A from the audience. Before we begin the formal remarks, I want to remind you that certain statements on today's call, including expected future operational and financial performance and industry growth, are forward-looking statements that are made under the Safe Harbor provisions of The U.S. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement. Further information regarding these and other risks is included in the reports or documents we have filed with or furnished to the Securities and Exchange Commission.
These statements only reflect our current and preliminary view as of today and may be subject to change. 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 U.S. Dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer these translations into U.S. Dollars solely for the convenience of the audience. Now I will turn the call to our Chairman and CEO, Mr. Xiang Xu. Mr. Xu, please go ahead.
Anita Xu: Thank you, Mr. Xu. Hello, everyone. This is Anita, and I'll now deliver our CEO, Mr. Xu's remarks. So the solar PV industry faced continuous challenges in 2025 with market prices across the solar value chain declining due to industry overcapacity and high inventory levels, remaining below cash cost levels. As a result, Daqo New Energy Corp. recorded quarterly operating and net losses. Nevertheless, we maintained a strong and healthy balance sheet with no financial debt. As of June 30, 2025, the company had a cash balance of CNY599 million, short-term investments of CNY490 million, bank notes receivable of $49 million, and total fixed-term bank deposit balance of $994 million.
In total, our financial bank deposits and investment assets readily convertible into cash as needed stood at $2.06 billion, providing us with ample financial liquidity. With no financial debt, our solid financial position brings us confidence and strategic resilience to navigate conditions and weak selling prices. Total production volume at our two hot water facilities for the quarter was 29,012 metric tons, within our guidance range of 25,000 metric tons to 28,000 metric tons. Towards the end of the quarter, our Chinese authorities intensified efforts to curb disorderly competition. We proactively scaled back new sales orders in anticipation of future price recovery.
Accordingly, our sales volume for the quarter decreased to 18,126 metric tons from 28,008 metric tons in the first quarter. Due to lower utilization across our factories, idle facility-related costs for the quarter were approximately $1.3 per kilogram, primarily reflecting noncash depreciation expenses. On a positive note, a decline in the cost of silicon metal and reduced energy consumption drove our cash cost lower by 4% to $5.12 per kilogram sequentially, including approximately $0.18 per kilogram related to idle facility maintenance. Overall, polysilicon unit production cost decreased by 4% sequentially to an average of $7.26 per kilogram, with lower unit depreciation costs resulting from higher production.
In light of the current market conditions, we expect our total polysilicon production volume in 2025 to be approximately 27,000 to 30,000 metric tons. As a result, we anticipate our full-year 2025 production volume to be in a range of 110,000 metric tons to 130,000 metric tons. During the second quarter, the solar PV industry remained in a cyclical trough, although proactive initiatives started to emerge towards the end of the quarter. On the demand side, China experienced a surge in installations under market-based reform policies and set a new global record with a staggering 93 gigawatts of new solar power capacity added in May.
However, installations plummeted to 14 gigawatts in June, following front-loading earlier this month, ahead of the May 31, 2025 cutoff date for new projects. Poly market prices trended downward during the quarter, falling from RMB39 to 45 per kilogram in April to RMB32 to RMB35 per kilogram by June. According to industry statistics, overall industry poly production for 2025 year-to-date has been running below overall demand and consumption, with monthly supply of approximately 100,000 to 110,000 metric tons. As a result, energy inventory decreased by approximately 30,000 to 40,000 tons between January and July, leaving overall industry polysilicon inventory lower than at the beginning of the year.
Heading into the third quarter, Chinese authorities have demonstrated increased determination to address irrational competition and energy overcapacity, with the anti-evolution initiative taking a lead role in sectors such as solar PV. On June 29, an article from China's official newspaper People's Daily highlighted the issue of oversupply and disruptive competition in the solar PV industry, calling for measures to curb business competition and promote high-quality development. On June 1, President Xi emphasized the need to regulate disorderly low-price competition and phase out outdated capacity at the Central Financial and Economic Affairs Commission meeting.
The following day, the Ministry of Industry and Information Technology convened a symposium with four key solar PV companies to accelerate the industry's transition toward high-quality growth. Most recently, on July 24, government authorities released a draft amendment to the price law, representing a significant step towards strengthening market supervision and deterring unfair pricing practices. The draft clarifies criteria for identifying unfair pricing behavior, such as low-price dumping, and strengthens legal accountability for price-related violations. As a result, polysilicon sales prices have rebounded in July, and polysilicon future prices surged significantly, supported by favorable factors such as expected higher spot pool and simultaneous increases in downstream product prices.
For reference, the 2,500 six-nine contract rose sharply from a low of RMB30 per kilogram in June 2025 to a record high of RMB55 per kilogram in July 2025, the strongest level since 2020. The solar PV industry continues to shift strong long-term prospects. In the medium term, we believe that the combined effect of industry self-discipline and government anti-evolution regulations will foster healthier and more sustainable industry. In the long run, as one of the most effective and sustainable energy sources globally, solar power is expected to remain a key driver of the global energy transition and sustainable development.
Looking ahead, Daqo New Energy Corp. is well-positioned to capitalize on the long-term growth in the global solar PV industry and strengthen its competitive edge by enhancing its higher efficiency in touch technology and optimizing its cost structure through digital transformation and AI adoption. As one of the world's lowest-cost producers with the highest quality in touch products, a strong balance sheet with no financial debt, we are confident in our ability to weather the current market downturn, capitalize on market recovery, and emerge as a leader in the industry positioned to capture further growth. So now I'll turn the call to our CFO, Mr. Ming Yang, who will discuss the company's financial performance for the quarter.
Ming, please go ahead.
Ming Yang: Thank you, Anita, and hello, everyone. This is Ming Yang, CFO of Daqo New Energy Corp. We appreciate you joining our earnings conference call today. I will now go over the company's second quarter 2025 financial performance. Revenues were $75.2 million compared to $123.9 million in the first quarter of 2025 and $219.9 million in the same quarter of 2024. The decrease in revenue compared to the first quarter of 2025 was primarily due to a decrease in sales volume. Gross loss was $81.4 million compared to $81.5 million in the first quarter of 2025 and $159 million in the second quarter of 2024.
Gross margin was negative 108% compared to negative 65.8% in the first quarter of 2025 and negative 72% in the same quarter of 2024. The decrease in gross margin compared to the first quarter of 2025 was primarily because sales volume decreased while idle facility costs remained relatively fixed. SG&A expenses were $32.1 million compared to $35.1 million in the first quarter of 2025 and $37.5 million in the second quarter of 2024. SG&A expenses during the second quarter included $18.6 million in non-cash share-based compensation costs related to the company's share incentive plan compared to $18.6 million in the first quarter of 2025.
The decline in SG&A expenses in the second quarter compared to the first quarter is a result of lower staffing costs as well as lower sales expenses. R&D expenses were $800,000 compared to $500,000 in the first quarter of 2025 and $1.8 million in the same quarter of 2024. R&D expenses can vary from period to period and reflect R&D activities that take place during the quarter. As a result, the foregoing loss from operations was $115 million compared to $114 million in the first quarter of 2025 and $195.6 million in the same quarter of 2024.
Operating margin was negative 153% compared to negative 92% in the first quarter of 2025 and negative 89% in the same quarter of 2024. Net loss attributable to Daqo New Energy Corp. shareholders was $76.5 million compared to $71.8 million in the first quarter of 2025 and $119.8 million in the second quarter of 2024. Loss per basic ADS was $1.14 compared to $1.07 in the first quarter of 2025 and $1.81 in the second quarter of 2024. Adjusted net loss attributable to Daqo New Energy Corp. shareholders, excluding non-cash share-based compensation costs, was $57.9 million compared to $53.2 million in the first quarter of 2025 and $98.8 million in the same quarter of 2024.
Adjusted loss per basic ADS was $0.86 compared to $0.80 in the first quarter of 2025 and $0.50 in the same quarter of 2024. EBITDA was negative $48 million compared to negative $48.4 million in the first quarter of 2025 and negative $145 million in the second quarter of 2024. EBITDA margin was negative 64% compared to negative 39% in the first quarter of 2025 and negative 66% in the second quarter of 2024. Now on the company's financial condition. As of June 30, 2025, the company had $599 million in cash, cash equivalents, and restricted cash compared to $792 million as of March 31, 2025, and $998 million as of June 30, 2024.
As of June 30, 2025, short-term investments were $418.8 million compared to $168 million as of March 31, 2025, and $219.5 million as of June 30, 2024. And as of June 30, 2025, notes receivable balance was $49 million compared to $62.7 million as of March 31, 2025, and $80.7 million as of June 30, 2024. Notes receivable balance represents bank notes with maturity within six months. And as of June 30, 2025, the balance of fixed-term deposits within one year was $960.7 million compared to $1.12 billion as of March 31, 2025, and $1.17 billion as of June 30, 2024. Now on the company's cash flows.
For the six months ended June 30, 2025, net cash used in operating activities was $105.4 million compared to $278.6 million in the same period of 2024. And for the six months ended June 30, 2025, net cash used in investing activities was $342.7 million compared to $1.7 billion in the same period of 2024. The net cash used in investing activities in 2025 includes $87.8 million in the purchase of GP&E and $255 million related to the purchase of short-term investments and fixed-term deposits. And for the six months ended June 30, 2025, net cash used in financing activities was $32,000 compared to $43 million in the same period of 2024. And that concludes our prepared remarks.
We will now open the call to Q&A from the audience. Operator, please begin.
Operator: Thank you. We will now begin the question and answer session. Our first question today will come from Alan Hon of JPMorgan. Please go ahead.
Alan Hon: Thank you for letting me ask questions, management. I have two questions. The first one is on the policy development. Can you share some color on the latest development on the discussions on the consolidation fund or other policy development right now? And number two is on product prices. I understand like due to the pricing law, I mean the product prices increased towards the 45 to 50% level. But at the same time, I mean the sequential demand supply and channel inventory is also increasing. So how should we think about like the product price in the next three months? Thank you.
Anita Xu: So regarding the latest development in the industry, on August 19, the MIT, also the NDRC, along with the Ministry of Social Affairs and State Administration for Market Regulation and National Energy Administration, jointly held a symposium on the solar PV industry. During that meeting, a number of government officials together with a number of solar PV manufacturers and lower power companies as well as the CPRA and relevant local industrial and information technologies departments attended the meeting. Basically, during the meeting, they reinforced that we have to curb the irrational competition of selling below cost.
First, we have to strengthen the industry regulation through strengthening the management of investment in the PV projects and promote the gradual phasing out of outdated production capacity through market-oriented and law-based approaches. Second, they aim to curb low prices in the quarterly competition through improving the price monitoring and also the product pricing mechanism to track down irregular practices such as selling below cost. Lastly, to standardize the product quality, combat processes such as reducing the quality control or things like infringing IP rights. During the meeting, the essence is to support the industry self-regulation and to gradually work towards forming this buyout SPV for acquiring outdated capacity in the industry.
Regarding prices, it will really depend on how this buyout SPV will roll out because we're still in the process of working out the details of such SPV. So it's hard for us right now to say exactly how prices will develop in the coming months. But as we can see recently, prices have increased, especially in the futures market and the expectation of rising prices. Also, if we look at the latest solar projects, that could work as a sign of the industry development. The China Huadian Corporation had a 20 gigawatt project, and from that, the module price was around RMB71 per watt to RMB75 per watt.
So it has really increased, and it's way above the floor prices for modules right now. We believe that has passed through to the upstream poly sector. So I hope that answers your question.
Operator: Our next question today will come from Philip Shen of ROTH Capital Partners. Please go ahead.
Matt Ingraham: Hi, this is Matt Ingraham on for Phil. Thank you for taking our questions. Kind of following up on the past question is, how sustainable do you think that higher pricing can be with the anti-involution initiatives? And secondly, what's your outlook for industry production volumes? And when would you expect to see the inventory levels be healthy again?
Ming Yang: Give us a minute. We're going to translate for Mr. Xu.
Anita Xu: Okay. So first of all, I think one thing that's clear is that there has been consensus that selling below cash cost is unsustainable and very detrimental to the overall industry development. In our view, that's disruptive to the healthy development of the industry and hence, poses legal risks. We will be enforcing the regulations and the laws, and we think that all the industry players are on the same page regarding that. In terms of production volume, I think going forward in the next couple of months, it will be around 100,000 metric tons to around 110,000 metric tons, relatively balanced with demand per month.
Matt Ingraham: Okay. And then you kind of talked about potentially in the past, like acquiring surplus production capacity. Is there an update on that strategy? And do you think we could see anything in the near term?
Anita Xu: Yes. I think we're still in progress for the SPV. The whole picture will become more clear in the coming weeks or the coming months. But all the energy players as well as the power companies and the relevant regulators are all working hard toward coming to a consensus because that would be very remarkable for the industry and could set the tone for similar industries in China, such as EV and also lithium batteries. I think they're starting with solar PV, which is why they are mentioned about solar PV in the news article by People's Daily on June 30. So we are all working very hard towards coming to a result.
We are quite optimistic about that because that's what the industry should be, and that's good for the overall development of the industry because right now, selling lower cash cost, first of all, none of the companies is making a profit. Secondly, internationally, they have been viewing China or accusing China of antidumping, and that's not something that we want to see as a whole.
Operator: Our next question today will come from Alan Yong of Jefferies. Please go ahead.
Alan Yong: Thanks a lot for taking my question. My question is about the buyback the company just announced. So I saw that the company has approved $100 million of share repurchase program. Wonder what's the thinking behind that? And also, what's the timeline in the buyback?
Anita Xu: Yes. Thank you, Alan. So we actually just authorized this new share repurchase program today in the amount of $100 million until the end of next year. The logic behind this is that we are optimistic about the future of the industry, and we believe we could see a turning point soon. I believe previously, our valuable shareholders have been wondering when we will want to start the share repurchase. The reason why we were hesitant about it is because we believe that relying on the market to rebalance supply and demand will take a relatively long time of approximately two to three years given how strong and all the companies who have expanded their capacity this round are.
However, we believe that because we are on the same page towards promoting the healthy development of the industry, we are more optimistic about the future or the outlook of the entire industry. We believe that we want to strengthen the confidence of our shareholders as well, and that's aligned with our overall strategy. In terms of the overall pace of the share repurchase program, I think that would also be contingent upon the market development, but that's definitely the first move we're working towards, strengthening the confidence in the market.
Alan Yong: Given that the stock price of Asia is actually up off IPO price already. So will share price or shareholding reduction on the Asia to fund further buyback in USD back on the table again?
Anita Xu: Yes. I think that's definitely a consideration given that we have been trading above the IPO issue price, right now, it should be around €30. Yes, that's definitely on the table, and we'll consider that. But I think how we want to start this program versus remaining cash on our books right now because previously, we still have a meaningful amount on the list goes. So we will start with that allocation first. But selling on Asia to repurchase on the U.S. is definitely back on the table.
Alan Yong: That's very clear. And following the question from Alan and also Philip on the consolidation initiative. So how do you see yourself in terms of the end game like the amount of volume you will be able to produce? For example, now your guidance is around 110,000 to 130,000 metric tons for the production volume of this year. If the consolidation effort is successful, what do you think will be your production volume going forward?
Anita Xu: I think that depends on a couple of things. If we calculate the amount of overall capacity that's built or in the process of being built, that will be around 3,500,000 metric tons at least. The production volume of how much we have produced per year will really depend on how much capacity is still remaining in the market and the overall demand per year, right? Because I think the fundamentals behind this action are that the supply would meet the demand per year from now on. So I believe that going forward, all the companies will reduce their utilization rates or operate at a utilization rate that would match the demand.
So it won't be 100%, at least in the coming years.
Ming Yang: Great. Thanks, Alan.
Operator: Our next question today will come from Mengwen Wang of Goldman Sachs. Please go ahead.
Mengwen Wang: Hi. Thank you, management, for taking my question. I have two questions mainly related to the Polyprice outlook. So first, do we have any color on the benchmark production costs to derive the policy regulated pricing? Because I know there's a lot of news coming in to talk about selling price should not be under the production cost, but do we have any more colors on the definition of the production cost? Secondly, as we mentioned, we have been doing well in terms of sustaining the poly price hike. As a result, our shipment volume declined a bit. So going forward, how do we see how do we balance the price and inventory dynamic? Yes, that's my question. Thanks.
Ming Yang: Okay. Thanks, Mengwen, for your question. Our view is that the industry will need to sell at a price above the industry production costs. Our understanding is the industry overall, I would say the average production cost is probably in the mid-forty-ish range. Our view is that because of the Chinese law and the government policy, that will be the minimum poly pricing that industry players will be required to sell to its customers. If you look at the most recent, both transactional pricing as well as futures pricing, in the high kind of the high-40s to the low-50s, that is reflective of this new government policy that requires the industry players to sell above production costs.
So that is our poly price outlook going forward.
Mengwen Wang: Yes. To follow-up the question, if the poly price stays at around RMB50 per kilo and if we don't our product doesn't sell, like we keep piling up our inventory. So how do we see how to like what's our strategy in terms of this kind of situations?
Ming Yang: I think there will be industry policies and perhaps government policies supported by the government, and that will require industry supply to balance with industry demand, right? Let's say, just making assumptions, if industry demand is 1,200,000 tons per year in 100,000 tons per month, then the industry sales and the annual production will be consistent with that demand levels. So it will be adjusted so that poly pricing can be maintained at the production costs or above level.
Anita Xu: And to follow-up on your question on inventory, I think for the big picture is people want to manage their inventory. I think the direction is to manage the utilization rates of the company so that we'll not be over demand going forward. For us, we will really have to wait to see how the regulation unfolds in the next coming weeks or the next coming months before we can decide what our strategy will be. Also, to add on, I know there are companies who are participating in the futures market. We've also participated a meaningful amount in the futures market just to hedge against risk and to arbitrage as a strategy.
Mengwen Wang: Yes. Thanks, Ming, and thanks, Anita. That's really clear. So to sum up, we are expecting some kind of policy to help the industry cut production into September. We have actively engaged in the polysilicon future market in order to mitigate the volatility of the polysilicon price, right?
Anita Xu: We were registered as the first batch of the companies who are allowed to sell in the futures market. But strategy-wise, it will really depend on the regulations that will come out and yes, and how the spot prices will move.
Mengwen Wang: Yes. Sure. How about the policy timeline? Should we expect any meaningful policy kicking into September?
Anita Xu: We are working towards or all of the related parties, including the CPRA, the manufacturers, and the related regulators are working very diligently toward a result coming out from the continuous meetings. However, we cannot guarantee, but we believe that because everyone is on the same page, we are working towards a result or a proposal coming out.
Operator: The next question today will come from Shiwa Xu of CICC. Please go ahead with your question.
Shiwa Xu: Thanks, management. This is Shiwa Xu from CICC. My first question is, I thought you lowered the sales volume for the second quarter. So how's the plan on it? What's the plan for utilization rate in the future? My second question is, I saw you keep reducing the production cost. Besides the reduced cash cost, what other ways are there to reduce the cost? Thank you.
Anita Xu: Thank you, Shiwa. So I think for the first question, the reason why the sales volume is meaningfully below the production volume is because prices are really trading at a very low level and below cash cost level. As we are working towards or working out a proposal since the first meeting that was hosted by MIT and NDRC happened in the second quarter, we were waiting to see how the policies will shift or how much capacity will phase out in the future so that we can adjust our sales strategy accordingly. We believe that once the regulations come out, if any, then we will try to maintain our inventory at a healthy level.
Ming Yang: Look, I'll follow-up. Regarding utilization rates, I think we're maintaining this 30% to 35% utilization rate. It will be subject to, for example, demand environment and pricing as well as the industry consensus or industry self-discipline in terms of supply and production. It will be a balance of those decisions. But I think currently we're maintaining the 30% to 35% utilization rate for now in the monitoring industry status and progress. In terms of production costs, I think for Q2, it is slightly lower than Q1. It's helped by both improvements in manufacturing efficiency and, for example, lower energy usage, lower metal costs. Currently, we're expecting the cost trend to continue to improve for Q3 as well.
For example, our current cash cost is approximately, say, $5 per kilogram right now, I think, on the current supplemental cost, which is already lower than our Q2 2025 cost. So that's the current cost status for the company.
Shiwa Xu: Thank you.
Ming Yang: Okay. Thank you. Goodbye.
Operator: Our next question will come from Gordon Johnson of GLJ Research. Please go ahead.
Gordon Johnson: Hey, guys. Thanks for taking the questions. So I guess my first question is, it seems like you guys explicitly said you intentionally held back polysilicon sales in the second quarter. Can we conclude from that you'll sell more in the third quarter, if you can provide some color there? From my calculations, it seems like you're guiding production to increase from 26,000 metric tons at the midpoint in Q2 to 28,500 in Q3 and then 40,700 in Q4. Should we take from that you intend to sell significantly more polysilicon in Q4? And then I have a follow-up. Okay.
Anita Xu: Thank you, Gordon. First of all, I think the reason why we held back or sold relatively a lot lower than our actual production volume was because it was trading at below cash cost. As we don't want to disrupt the overall industry dynamics or I should say, as the industry has guided out, we should not be selling below the production cost. We have adjusted our sales strategy accordingly. Going forward, in the third quarter, you might have seen recently that prices have ticked up. We believe if it's not cutting below our cost, then it makes sense for us to start selling.
Like I said before, I think it will really depend on when and how the regulations will come out, then we would adjust our sales strategies accordingly in the remaining days in the third quarter as well as going forward into the fourth quarter.
Gordon Johnson: Okay, that's helpful. Then if I think about you guys said that transactions and the futures market is around the high 40s, low 50s. Based on my calculation, that would suggest the price of around $7.7 for polysilicon USD. Yet your ASP in Q2 was $4.19. So I understand you don't have great visibility, it seems like on what you're going to sell in Q3 until policy is decided. But are you transacting at that price that you highlighted the high 40s, low 50s levels right now? Thank you for the questions.
Ming Yang: Gordon, so I think that there's two specific goals that the company is trying to achieve, right? One is based on the government policies and the new law. So I think we will sell at above our production cost for sure. I think the levels indicated are representative of the market current transactional cost. Also, another of our company's sales operations goal is to significantly reduce our inventory at hand as well given the current market dynamic environment where there's opportunity to do that. So we will try our best to do that. I guess one clarification regarding pricing is RMB price that we call actually includes a 13% VAT, okay?
So I think you have to divide by 1.13 to get to the actual selling price ex VAT. So that's roughly maybe 5.8 range something like that.
Gordon Johnson: Right. So I mean does that mean you guys will be gross margin positive in Q3? Thank you.
Ming Yang: Let just conclude that we expect to be generating cash from our sales. Because there's a lot of, I guess, noncash depreciation costs related to our idle facility because we're only running at one-third utilization. But I think if you remove the noncash depreciation, I think we're going to generate positive cash margin from sales.
Gordon Johnson: Very helpful. Thank you. Thank you.
Ming Yang: Okay. Good. Thanks, Gordon. Thank you.
Operator: This will conclude our question and answer session. At this time, I'd like to turn the conference back over to Jessie Zhao for any closing remarks.
Jessie Zhao: Thank you, everyone, again for participating in today's conference call. Should you have any further questions, please don't hesitate to contact us. Thank you, and have an awesome day. Goodbye.
Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.