Daqo New Energy Corp. Q4 FY2021 Earnings Call

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 fourth quarter and fiscal year of 2021, which can be found on our website at www.dqsolar.com. To facilitate today's conference call, we also have 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 quarter and the year. 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 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 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 preliminary views 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 conference 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. Without further ado, I now turn the call over to our CEO, Mr. Zhang.

Thank you, Kevin. Hello, everyone. Thank you for joining our conference call today. We had an excellent year with great operational and financial performance. We produced 86,587 metric tons of polysilicon in 2021, exceeding our guidance of 83,000 to 85,000 metric tons and 12% higher than 77,288 metric tons produced in 2020. In 2021, approximately 99% of our production with smaller grade polysilicon reached the highest pricing in the market and was the product most sought after by wafer customers. The year 2021 saw strong global policies supporting carbon neutrality and the decarbonization of the energy sector that led to strong demand for solar energy products and resulted in high polysilicon prices. We delivered a strong financial performance for the full year with a gross margin of 65% and net income attributable to our shareholders of USD 756 million, representing a 485.3% increase compared to 2020. Daqo New Energy also achieved 2 additional major milestones in 2021. We successfully listed our subsidiary, Xinjiang Daqo, on the Shanghai Stock Exchange in China in July 2021, which will significantly amplify our future growth with access to a robust capital market in China. We also successfully completed the construction of our Phase 4B project and started the pilot production in December 2021 with better-than-anticipated results. As such, we believe that we will continue to be one of the world's best operators in the polysilicon industry and a market leader in many aspects, including production throughput, production quality, profit margin, cost structure, capital structure, and balance sheet. In the fourth quarter of 2021, we produced 23,616 metric tons of polysilicon, including 1,111 metric tons from our newly built Phase 4B facility, and we sold 11,642 metric tons. The end of the year, seasonality impact, combined with downstream inventory adjustments, led to a temporary reduction in demand when our customers in the wafer sector reduced their own raw material and product inventory levels and temporarily lowered the utilization rate. After extensive analysis of long-term supply and demand dynamics, we believe that the lower utilization level in the wafer sector was due to seasonal impact and temporary in nature. Therefore, we expect conditions to resume to normal once the solar value chain achieves a new balance when the market demand bounces back. In January 2022, the solar market did see a strong pickup in end-market orders, and wafer sector utilization and demand quickly resumed to normal levels. As a result, polysilicon ASPs started to recover meaningfully. Our inventory also quickly returned to a normal level by the end of January. In the fourth quarter, our production cost was $14.11 per kg. The increase in production cost as compared to the third quarter was primarily due to the increase in the cost of raw material of silicon powder. The average procurement cost of silicon powder increased from $2.50 per kilogram in the third quarter to $8.68 per kg in the fourth quarter. Start-up costs related to our new Phase 4B facility also had a temporary impact on our costs in the fourth quarter. Despite the strong increase in raw material costs during the fourth quarter, most of these costs increases were passed to our downstream customers. As ASPs for the fourth quarter increased to $33.91 per kg compared to $27.55 per kg in the third quarter. Moreover, the price of silicon powder started to decline quickly in January 2022. The current market price of silicon powder is approximately $3.50 to $3.60 per kg. We expect our production cost to decrease meaningfully in the first quarter of 2022, due to lower silicon powder prices and better operational efficiency in our Phase 4B facility. We completed the Phase 4B project ahead of schedule despite significant difficulties and challenges resulting from the resurgence of COVID-19. We commenced the construction of Phase 4B in 2021 and harvested the first batch of polysilicon from the brand new CVD furnaces in early December 2021. Within the same year, this has been a new milestone in our company's history in terms of building new capacity and have also set a new benchmark for the industry. We've produced approximately 1,411 metric tons and 2,825 metric tons of polysilicon from our Phase 4B facility in December 2021 and January 2022, respectively. We expect to reach more optimized output in February and March 2022 and to produce approximately 9,500 metric tons from our Phase 4B facility in the first quarter of 2022. Polysilicon production from this new facility has already been delivered to our mono wafer customers and met their quality standards. Our Inner Mongolia polysilicon product projects consisting of a 100,000 metric ton polysilicon for the solar industry and 1,000 metric tons polysilicon for the semiconductor industry are expected to commence in March 2022 and to be completed by the end of the second quarter of next year. We have already obtained the energy consumption approval and plan to partially use renewable energy to power these projects in the future. We also plan to expand the silicon powder production in Inner Mongolia in the future, which will allow us to further enhance our cost structure and improve our supply chain stability. Global solar PV installations were approximately 160 gigawatts in 2021, representing a 23% increase compared to approximately 130 gigawatts in 2020. The 2021 global PV market size was limited by the availability of polysilicon. Additionally, solar module pricing increased by more than 20% during 2021. The increases in both volume and price in 2021 demonstrated a very strong market demand, as solar broadly achieved grid parity in major power markets around the world and the development and use of renewable energy have become a global consensus to meet the urgency of global climate challenges. We believe the strong momentum in the solar PV industry will continue to provide a huge market with significant growth potential in the future. In the solar PV industry, polysilicon production has the highest entry barrier, requiring substantial capital, a complex and difficult management process, stringent product quality requirements, and long lead times. We are confident that our advantages and competitive positioning with first-class quality and competitive cost structure will enable us to continue increasing our market share and enhance our global leadership in the polysilicon industry. For the outlook and guidance for Q1 2022, the company expects to produce approximately 31,000 metric tons to 32,000 metric tons of polysilicon during the first quarter of 2022. The company expects to produce approximately 120,000 metric tons to 125,000 metric tons of polysilicon for the full year of this year, inclusive of the impact of the company's annual facility maintenance.

Thank you, Longgen, and good day, everyone. Thank you for joining our earnings conference call today. Now I will discuss our financial performance for the fourth quarter and fiscal year of 2021. We will begin with a review of our fourth quarter 2021 results. Revenues were $395.5 million compared to $585.8 million in the third quarter of 2021 and $247.7 million in the fourth quarter of 2020. As Longgen discussed earlier, the decrease in revenue as compared to the third quarter of 2021 was primarily due to lower polysilicon sales volume as a result of year-end market seasonality impacts combined with downstream inventory adjustments. With strong downstream demand and customer orders since the beginning of this year, our inventory level has returned to normal by the end of January. Gross profit was $239.8 million compared to $435.2 million in the third quarter of 2021 and $109.5 million in the fourth quarter of 2020. Gross margin was 60.6% compared to 74.3% in the third quarter of 2021 and 44.2% in the fourth quarter of 2020. The decrease in gross profit as compared to the third quarter of 2021 was primarily due to lower sales volume. The decrease in gross margin compared to the third quarter of 2021 was partly due to the impact of higher cost of raw materials. As Longgen indicated earlier, silicon powder cost has declined in Q1 2022 as compared to Q4 2021, and we expect our polysilicon production costs to decline as a result. Selling, general and administrative expenses were $10.2 million compared to $11.4 million in the third quarter of 2021 and $11.2 million in the fourth quarter of 2020. SG&A expenses during the quarter included $2 million in noncash share-based compensation costs related to the company's sharing incentive plan. R&D expenses were $1.3 million compared to $1.9 million in the third quarter of 2021 and $1.5 million in the fourth quarter of 2020. R&D expenses can vary from period to period and reflect R&D activities that take place during the quarter. R&D projects for the quarter include technology development related to impurity removal and manufacturing efficiency gains. As a result of the foregoing, income from operations was $228 million, compared to $421.7 million in the third quarter of 2021 and $98 million in the fourth quarter of 2020. Operating margin was 57.7% compared to 72% in the third quarter of 2021 and 39.6% in the fourth quarter of 2020. Net interest expense was $2 million compared to $4.5 million in the third quarter of 2021 and $8.1 million in the fourth quarter of 2020. The decrease was primarily due to a lower balance of bank loans. EBITDA was $251.1 million compared to $441.8 million in the third quarter of 2021 and $115.1 million in the fourth quarter of 2020. EBITDA margin was 63.5% compared to 75.4% in the third quarter of 2021 and 46.5% in the fourth quarter of 2020. Net income attributable to Daqo New Energy shareholders was $148.6 million compared to $292.3 million in the third quarter of 2021 and $72.8 million in the fourth quarter of 2020. Earnings per basic ADS was $2 compared to $3.95 in the third quarter of 2021 and $1.01 in the fourth quarter of 2020. Now on to our full-year 2021 results. Revenue for the year was $1.68 billion compared to $675.6 million in 2020. The increase was primarily due to higher polysilicon average selling prices and higher sales volumes. Gross profit was $1.1 billion, compared to $234 million in 2020. Gross margin was 65% compared to 34.6% in 2020. The increase was primarily due to higher polysilicon sales prices. SG&A expenses were $39.9 million compared to $39.5 million in 2020. R&D expense was $6.5 million compared to $6.9 million in 2020. Income from operations for the year was $1.05 billion compared to $188 million in 2020. Operating margin was 62.6% compared to 27.8% in 2020. Net interest expense was $20.5 million compared to $25.7 million in 2020. The decrease was primarily due to a lower bank loan balance. Income tax expense was $162.8 million compared to $28.2 million in 2020. Net income attributable to Daqo New Energy shareholders for the year was $756 million compared to $129 million in 2020. Earnings per basic ADS was $10.24 compared to $1.82 in 2020. Adjusted net income attributable to Daqo New Energy shareholders was $766.3 million compared to $147.1 million in 2020. Adjusted earnings per basic ADS was $10.37 compared to $2.07 in 2020. Now on the company's financial condition. As of December 31, 2021, the company had $724 million in cash and cash equivalents compared to $661 million as of September 30, 2021, and $118.4 million as of December 31, 2020. As of December 31, 2021, the bank notes receivable balance was $366 million compared with $353 million as of September 30, 2021, and $0.2 million as of December 31, 2020. Our inventory balance at the end of the year was $327.7 million. This compares to an inventory balance of $46.2 million at the end of the third quarter. The increased inventory balance was due to higher polysilicon finished goods inventory as a result of lower sales volume in Q4 as well as higher raw material prices related to silicon powder price increase and raw material and work in process inventory related to the start-up of our new Phase 4B facility. As of December 31, 2021, we have no bank borrowings, and all of our bank borrowings have been repaid during the year of 2021. This compares to total bank borrowings of $193.7 million as of December 31, 2020. And now on to the company's cash flows. For the 12 months ended December 31, 2021, net cash provided by operating activities was $639.1 million compared to $209.7 million in the same period of 2020. The increase was primarily due to higher revenues and higher gross margins. The 12 months ended December 31, 2021 net cash used in investing activities was $782 million compared to $118.5 million in the same period of 2020. The net cash used in investing activities in 2021 and 2020 was primarily related to the capital expenditures on the company's Phase 4B and Phase 4A projects. Total capital expenditures for the year 2021 was approximately $508 million. For the 12 months ended December 31, 2021, net cash provided by financing activities was $736.2 million compared to net cash used in financing activities of $95.5 million in the same period of 2020. The net cash provided by financing activities in 2021 was primarily related to the net proceeds of $935 million contributed by Xinjiang Daqo's IPO in China.

Our first question today comes from Philip Shen with Roth Capital Partners.

Just a quick one on the guidance for Q1. Given your expectation that inventory has returned to normal at the end of January, I think you guide to 31,000 metric tons in Q1. Does that suggest sales of maybe more than 40,000 metric tons in Q1 '22?

Philip, I think, basically, today, I think our production volume is high. See, each quarter, first quarter guidance is 31,000 metric tons. If you look at our end of December, I think our inventory is around 13,500 metric tons. So altogether, you see I think good for sale, I think almost 43,000 metric tons, 44. So basically, we should have like 5 days in our merchandise in shipments. So yes, I think it should be around 40,000 tonnes.

Could you provide more details about the expected total capital expenditures for the Inner Mongolia facility, including a breakdown between the expenditures for polysilicon for solar, silicon for semiconductors, and silicon metal capacity? Additionally, can you discuss how the cost structure for polysilicon production for solar will compare to your existing cost structure in Xinjiang?

We have announced total investments of CNY 32.5 billion for Xinjiang, covering the whole year and the next 3 to 5 years of strategic investments. For our wafer production in Mongolia, the total single project for solar silicon is 200,000 tonnes, and for semiconductors, it's 21,000 tonnes. Additionally, we are looking at 300,000 tonnes for silicon metal and around 200,000 tonnes for silicon. Our current priority is with the follow-on offering in Asia, which totals CNY 11 billion. This will primarily fund our first project, which includes 100,000 tonnes of polysilicon and 1,000 tonnes of semiconductor polysilicon. The expected capital expenditure for the 100,000 tonnes solar polysilicon project is around 8 billion, while we raised 11 billion, with 3 billion allocated for working capital. We have already secured CNY 500 million for the 1,000 metric tons of semiconductor polysilicon project from our IPO. Therefore, we have sufficient funds to cover these two projects. The next step includes processing 200,000 tonnes of silicon metal. Further developments, such as the additional 100,000 tonnes polysilicon for solar and 220,000 metric tonnes for semiconductors, will depend on market conditions and available capital. Currently, by the end of December, we expect to have around CNY 9 billion in our balance sheet without any bank loans or accounts receivables. This year has been strong, with favorable pricing, and we anticipate stable cash flows. Whether our follow-on offering is successful or not, we will still be able to execute the 100 metric tons polysilicon project for solar in Mongolia. Do you have any comments?

Can you discuss the expected cost structure for the Inner Mongolia, 100,000 metric ton polysilicon facility for solar, and how it compares to Xinjiang? What is your expected production cost structure?

The cost structure for the Inner Mongolia facility should, I believe, be about 3% to 4% lower compared to Xinjiang. This is due to scalability; we aim to achieve 100,000 tonnes with two production lines. Currently, our output in Xinjiang is around 120,000 to 125,000 tonnes, which is produced from six production lines. Therefore, we anticipate improvements in efficiency and the conversion rate from silicon powder to silicon. For instance, the electricity consumption per kilogram of polysilicon produced should decrease to approximately 52 KWH, down from around 60 KWH in January. All these factors will significantly enhance our operations. Most importantly, the quality of products from the Inner Mongolia project will surpass that of the Xinjiang projects. In Inner Mongolia, we expect to produce over 80% to 90% N-type polysilicon, whereas the Xinjiang project can achieve only about 70% to 80% without technological improvements. Quality is our main focus moving forward, especially as we transition from P-type to N-type polysilicon, which presents both a demand and a challenge we need to address.

In terms of the outlook for pricing, there's a lot of announcements of capacity expansion, and with that capacity expansion and extra supply, one would think that pricing would be coming down later this year. But I was wondering if you could talk through your latest outlook for how polysilicon pricing evolves as we get through the year, and how much production you expect from these new facilities?

I believe the price of polysilicon is influenced by both supply and demand, as well as the quality and quantity of the material. Regarding quantity, it's important to consider the target market, particularly how much in-store PV we plan to implement, specifically with modules. You also need to look at current wafer capacity, which is expanding rapidly in China, leading to strong demand. Last year, China produced approximately 420,000 tonnes of polysilicon, plus over 120,000 tonnes imported, totaling around 540,000 tonnes. This amount can support the end market for approximately 160 to 165 gigawatts. However, it's crucial to account for the wafers, as furnace operations need to be maintained. In December, many wafer producers decreased their capacity significantly; some reduced their operational rates to as low as 12%, 15%, or 20%. Consequently, we had inventory buildup in December because we refrained from selling at lower prices, ultimately selling 16,000 tonnes in January and around 13,300 tonnes in February. The inventory has since returned to normal levels. This year, we estimate usable supply to be around 250,000 tonnes, with Daqo contributing about 45,000 tonnes, Tongwei around 80,000 tonnes, and Asian polysilicon between 20,000 and 30,000 tonnes, with the remainder coming from technological improvements from other suppliers. Overall, we anticipate the total supply to reach between 750,000 and 800,000 tonnes, which could support an end market of approximately 220 to 230 gigawatts. We don't expect a significant drop in prices; our average selling price is currently around $32 to $33 per kg, and we project it will remain above $28 to $30 in the second half of the year. The potential challenge may arise next year, as new production comes online. However, I don't believe these new entrants will immediately offer high-quality products, as some require significant time to produce polysilicon. The quality of electronic-grade polysilicon still remains below 75%, which is a concern. The transition from P to M grade polysilicon requires high-quality material, meaning some of the current supply may not meet market demands. The future depends on how effectively the transition occurs and whether newcomers can deliver high-quality products. At Daqo, we plan to continue investing in silicon metal production to stabilize supply, lower costs, and ensure quality. Additionally, we will concentrate on the semiconductor segment for polysilicon, expecting some revenue from semiconductor silicon to start replacing imports by 2024. This will be our strategy over the next two to three years.

The next question comes from Gary Zhou with Credit Suisse.

Firstly, congratulations on the strong results. I have two questions. First, I would like to understand our A share dividend policy, which states we will pay no less than 30% of the profits. I am curious about the timeline for when the U.S. ADR may receive such dividends in cash and how we plan to utilize that cash. My second question is regarding the cost estimate for the first quarter this year. Thank you.

Hello, Gary, this is Ming Yang, I'm the CFO. Regarding your first question about the A share subsidiary dividend policy, our subsidiary in Daqo has issued a commitment letter to its shareholders in China. This commitment ensures the payment of cash dividends over a three-year period from 2021 to 2023, totaling no less than 30% of the average annual net profit during this period. In essence, it guarantees a minimum payment of 10% of the annual net profit. As shareholders of Xinjiang Daqo, we are contemplating the proposal of a dividend percentage higher than that for this year. However, we must also factor in capital expenditure requirements and the associated uncertainties related to Daqo's product offerings in China. Therefore, we aim to strike a balance between the interests of long-term and short-term shareholders. The dividend plan for Xinjiang Daqo in 2021 will require approval from the Board of Directors and the shareholders' meeting. The exact amount will be announced around mid-March of this year. Regarding your second question about cost estimates, our cost of goods sold for Q4 stood at USD 14.11, translating to approximately RMB 90 per kilogram, largely due to significantly higher silicon powder costs. However, since January, the cost of silicon powder has dropped to about $3.50 per kilogram, or roughly RMB 25 per kilogram. Overall, for Q1, without the impact of higher cost inventory, we expect costs to fall between RMB 50 to RMB 55 per kilogram, or approximately $8 to $8.50 per kilogram. With the higher cost inventory at the end of the year considered, I expect costs to range between $8 to $14, likely falling around $10 to $11 for Q1 before decreasing to the lower end around $8 to $8.50 in Q2.

I just want to quickly follow up on the first question. Am I correct in saying that the earliest we may pay dividends for the U.S. ADR is based on the FY '22 results? Additionally, before that time, could we consider using the dividends from Asia for some share buybacks at the U.S. ADR level?

I think basically, it's all Asia. It's Asian regulations. I think we will determine the dividends I think by the annual meeting, I think a board meeting, maybe this June. Usually, the dividends will declare, I think, release maybe in June, July. So basically, then also considering that Daqo is a major holder, so we need to exchange the Renminbi profit to foreign exchange. So it takes some time. Basically, what we need to do is either we continue to just release the dividends to the U.S. shareholders or we just buy back. So far, we're not making any decisions on this so far, okay? We will let you know.

The next question comes from Alan Lau with Jefferies.

Congratulations to management on the good results. And most of the questions were answered, I have a couple of minor questions. First of all, I would like to know in terms of lost profit in the first quarter, given that the cost is coming down, and while the policy income price stays strong. Do you expect the unit cost of it to stay similar or even better compared to Q4 last year?

He's talking about costs, right? You're talking about costs, right? The unit cost, right?

Let me address your question about profit. Currently, the average selling price is around $32 to $33, while we estimate the costs to be approximately $10 to $11. This gives us over $20 per kilogram in terms of contribution per kilogram. I believe this is one of the strongest periods for the company, and we definitely see it as an improvement compared to our Q4 results.

And considering the sales volume is high as well. I would like to check on the Asia issuance progress, because given the amount is relatively huge, we are talking about RMB 11 billion. I would like to know, is there any interest received so far? Like, any cornerstone investor or any major funds showing interest on this front?

I think as a follow-on offering right now, I think just accepted by the Shanghai Stock Exchange, still in the preselling of, I think, auditing, we call it checking the materials. The follow-on offering procedures will be simple than the IPO. Basically, just inside Shanghai Stock Exchange, inside and check all the data and question, I think it is time or 2 times more than they have a conclusion, then we just go to the China FCC for the registration. So the timing, I think, maybe we'll finish, I think, by the middle of July. And talking about potential investments, I think we already did some roadshow. I think so far, we sent our roadshow to 400, I think, quality institutional investors right now. So far, almost, I think, around 200 institutions are very interested in including some big names and also some sovereign funds. Yes, we are working on some. I think we'll let you know. I think some corner investments, investors may be taking, I think, a bigger chunk, maybe around $2 billion, $3 billion. So the rest of them, I think other investors have. Because the total, I think, of qualified investors should be limited to lower than 35, I think, investors. So we're working on that. We will let you know.

The next question comes from Colin Yang with Daiwa Securities.

This is Colin from Daiwa. My first question is regarding the demand-supply dynamics. As you may know, the polysilicon demand supply has remained largely balanced after 2100 and Daqo silicon powder also commenced operations in the last quarter, last year. And we do not see any new capacities coming out during the first 3 quarters this year. So my question is which quarter do you think we would see the most imbalanced demand and supply of polysilicon? And my second question is regarding the N-type and the P-type polysilicon, what is the cost difference in terms of N-type and the P-type polysilicon and is there any difference between the conversion ratios for the polysilicon conversion to 1 gigawatt of mono wafer?

That's a great question. Regarding the first part, I can't predict exactly when new supply will come in. However, I can say that producing polysilicon takes a significant amount of time from design to equipment procurement. For instance, companies like Tongwei are still ramping up their production, which takes around 18 months or so. I doubt that new entrants will be able to provide high-quality products very soon, likely not until the second half of next year. There won't be major changes this year, but you can expect some new players to enter the market next year. Ultimately, I believe that Tongwei and Daqo will capture over 50% of the market share, while the remaining companies will share the rest. Even if new entrants come in and drive prices lower, quality will remain a significant concern. As for your second question about P-type to N-type, shifting to N-type demands higher quality products. For example, if we use our Xinjiang facility, we currently produce around 130,000 tonnes of P-level silicon. However, if we shift to producing 70% N-type, our output might drop to about 120,000 tonnes, a reduction of 5 to 10%. The costs will also rise due to longer furnace processing times, which may increase energy consumption. The conversion rate might not change significantly, but other processing steps will require additional technical expertise. In terms of producing N-type, there aren't many companies in China with that capability. We are currently recognized and qualified for business applications by major downstream wafer producers.

So do you have any quantitative data like what is roughly the cost difference from P to N?

There is a slightly higher cost for N-type poly compared to P-type, specifically regarding production costs of the different types. This is similar to when multi-type poly was initially dominant and people began transitioning to mono-type poly. At that time, the production of mono-type poly was slower, resulting in more electricity loss and a different process, which led to a cost increase of about 10% to 15%. However, as we optimized our production, we transitioned to predominantly P-type mono, which reduced production costs over time. We expect a similar trend for N-type. Initially, N-type will require slower silicon growth with optimized processes, which will involve higher energy usage and possibly increased raw material costs, leading to about 5% to 10% higher costs. However, as we ramp up the production mix, these costs should decrease further. It's important to note that very few players in the industry can currently produce N-type, and this is likely to continue, particularly for new entrants.

I have another question. Do you have any color and share with us about any privatization plan for the U.S. ADR?

No, at least right now, we are not managing any forecast on any privatization. We are working on, I think, the Asia company, the company, I think the operations side we are not considering anything now so far.

The next question comes from Chao Ji with Goldman Sachs.

Can I ask about your perspective on the evolution of metal silicon powder prices throughout the year? You've previously mentioned very strong results this year, and there is also some new capacity in polysilicon. Recently, there have been significant reductions in silicon powder prices. How do you anticipate prices will trend in the upcoming quarters?

Last year, the price of silicon powder increased due to the government's focus on high consumption and convenience in production in Southern China during the first half of the year. This led to a peak in silicon metal prices, especially in September or October. However, the government later acknowledged issues, particularly regarding the solar industry, which is crucial for China. As a result, they reopened small and medium silicon metal plants for production. By December, silicon metal prices fell dramatically from CNY 90,000 per ton to around CNY 40,000 to 50,000. Currently, in February, the prices have decreased to about CNY 23,000 per ton. The rise in mineral and coal prices has increased production costs for silicon metal, which have escalated from about CNY 7,000 to 8,000 per ton historically to approximately CNY 13,000 to 14,000 per ton now. We anticipate that future prices may settle around CNY 20,000 per ton for the metal and between CNY 20,000 to 23,000 per ton for silicon powder. If we proceed with production in Inner Mongolia, we aim to start with 200,000 metric tons to align with our production goals, which should help reduce our cash costs to around CNY 30,000 if we produce our own silicon metal. This would provide us with a competitive advantage in the market.

This concludes our question-and-answer session. I would now like to turn the call back over to management for any closing remarks.

Thank you, everyone, for participating in today's conference call. Should you have any further questions, please don't hesitate to contact the company. Thank you. Bye-bye.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.