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Edited Transcript of DQ earnings conference call or presentation 13-Nov-18 1:00pm GMT

Q3 2018 Daqo New Energy Corp Earnings Call

Wanzhou, Chongqing Dec 10, 2018 (Thomson StreetEvents) -- Edited Transcript of Daqo New Energy Corp earnings conference call or presentation Tuesday, November 13, 2018 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kevin He

* Longgen Zhang

Daqo New Energy Corp. - CEO & Director

* Ming Yang

Daqo New Energy Corp. - CFO

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Conference Call Participants

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* Gary Zhou

Crédit Suisse AG, Research Division - Research Analyst

* Philip Shen

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* Wei Feng

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Presentation

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Operator [1]

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Good day, and welcome to the Daqo New Energy Third Quarter 2018 Results Conference Call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Kevin He, Investor Relations. Please go ahead.

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Kevin He, [2]

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Hello, everyone, I am 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 2018. And also to facilitate today's conference call, we also have prepared a PPT presentation for your reference. Those can be found on our website at www.dqsolar.com.

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 third quarter of 2018. 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 containing 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 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. Without further ado, I now turn the call over to our CEO, Mr. Zhang, please.

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Longgen Zhang, Daqo New Energy Corp. - CEO & Director [3]

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Hello, everyone, and thank you for joining us today for our earnings call. We are pleased to report another solid quarter. Due to the impact of China's new solar PV policy issued on May 31, the solar end-market demand in China weakened considerably. In spite of weak market demand, we sold 6,199 metric ton of polysilicon during the third quarter. With the polysilicon inventories returning to lean levels, which demonstrates our product's superior quality and our strong relationships with downstream customers. We successfully completed our annual maintenance in September and resumed production earlier than originally scheduled, to minimize its impact on production volumes and our cost structure.

In addition, we also began pilot production for our Phase 3B expansion project in October ahead of schedule. We are in the process of optimizing throughput efficiency and quality and expect to ramp up Phase 3B to full capacity early in the first quarter of 2019.

With lower electricity rate, higher manufacturing efficiency, greater economies of scale and enhance the equipment and processes, we expect the overall total cost of polysilicon production from our Xinjiang facilities to decrease to approximately $7.50 per kilogram when fully ramped up. Moreover, Phase 3B will not only increase our capacity and reduce costs, but also allow us to improve production quality with approximately 80% of our production capacity devoted to mono-crystalline grade polysilicon, of which a half will be applicable for use in N-type mono-crystalline solar cells.

With the successful pilot production of our Phase 3B expansion, preliminary manufacturing data from our Xinjiang polysilicon operation has been encouraging.

We are on track to achieve record low levels in energy usage and in silicone utilization per unit of polysilicon production, which will help us to achieve our new lower cost target. Even with the impact of our new solar PV policy issued on May 31, 2018, China will still be the large solar PV market this year with 34.5 gigawatts already installed during the first 3 quarter of this year.

Based on most industry forecasts, 4-year installation is expected to be approximately 40 gigawatts for China.

In later September, China's National Development and Reform Commission released the second draft of renewable energy portfolio standard, which is expected to lay a solid foundation for the nation's goals of increasing nonfossil energies as a percentage of total primary energy to 15% in 2020, and 20% in 2030, respectively.

These bodes well for the continued growth of solar energy for China market to meet this goal.

In addition, China National Energy Administration held a solar industry forum on November 2, in which it reaffirms the government support and the commitment to the solar PV industry.

During the forum, NEA officials indicated that they expect the solar industry will continue to benefit from government subsidies through 2022 when grid parity is expected to be achieved. There will not be a one-time cutoff of solar subsidy in the interim. NEA also expects an increase to China's 13th 5-year plan cumulative solar installation target to at least 210 gigawatts or higher.

NEA is also in the process of accelerating the release of the next solar policy to support the development of the domestic solar industry.

Based on these comments, we believe that the solar market is at all near bottom and it bodes well for increased solar project installation, and improved demand for the China market for 2019 and beyond.

The increased market activity can happen as soon as the first half of the 2019, which would bode well for polysilicon demand and the price.

In addition, several government agencies have started to evaluate opportunities to streamline and effectively reduce the nonsystem cost of solar PV projects such as permitting, fee and a grid connection. So that an increased number of grid parity projects will become feasible in China as soon as possible. As such, solar PV now is becoming one of the most cost-effective and feasible forms of renewable energy generation in many global markets, including China.

With cost reduction efforts continuing throughout the entire solar PV value chain, we believe the new era of grid parity in the global solar PV market is just around the corner.

We're leading the solar market. We believe pricing are at or near bottom. And in recent weeks, we have seen encouraging signs of price stabilization, particularly for mono grid polysilicon. Mono-PERC based high-efficiency solar products are doing well in the market from volume perspective.

In particular, current polysilicon pricing has fallen to or below the costs level of the most Tier 1 suppliers, and below the cash costs of Tier 2 suppliers. And forcing some suppliers to reduce utilization or shut down production altogether.

As witnessed by our inventory level, polysilicon inventory levels continue to be very lean in the market and at our clients. Once we begin to see demand recovery driven by China's new solar policy, we believe there is a good chance that price can recover soon.

As one of the industry's leading suppliers, Daqo New Energy benefits from the strong cost structure advantage and the quality. We are continuously being improved upon with the addition of our Phase 3B and 4A projects. Our Phase 4A capacity expansion project is currently under construction and is expected to begin pilot production in the fourth quarter of 2019.

We expect to ramp up Phase 4A to full production in the first quarter of 2020, which will expand our total production capacity to 70,000 metric tons and reduce the overall total cost of polysilicon production for our Xinjiang facilities to approximately $6.80 per kilogram.

We believe the combination of our cost-structure advantage, high-quality products and increasing capacity will allow us to benefit from future sustainable growth in global solar PV markets.

In September 2018, the company made a strategic decision to discontinue its Chongqing business subsidiary, encoding its solar wafer manufacturing operations to accommodate the increasingly challenging market conditions.

Accordingly, the company has incurred USD 6.8 million in fixed assets impairment and $1.3 million in employee severance related to wafer sector in this quarter. For financial reporting purpose, the Chongqing subsidiary has been classified as discontinued operations.

Furthermore, the company recognized $11.4 million fixed-asset impairment loss for its Chongqing polysilicon facilities in the quarter, which resulted from assets identified as nontransferable and/or not able to be reutilized by its Xinjiang polysilicon manufacturing or expansion projects.

The company expects to produce approximately 7,000 metric tons to 7,100 metric tons of polysilicon and sell approximately 6,800 metric tons to 6,900 metric tons of polysilicon to external clients during the fourth quarter of 2018.

For the full year 2018, the company expects to produce approximately 23,000 metric tons of polysilicon. This outlook reflects Daqo New Energy's current and the preliminary view as of the date of these press release and may be subject to change. The company's ability to achieve these projections is subject to risks and uncertainties. With that, I will return the call over to Ming, our CFO, who will go over our financials for the quarter. Ming, please go ahead.

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Ming Yang, Daqo New Energy Corp. - CFO [4]

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Thank you, Longgen, and good day, everyone. Thank you for joining our call today. First of all, I'd like to remind the audience that since the company has discontinued its Chongqing business subsidiary in September 2018, the operational results of the Chongqing business have been excluded from the company's financial results from continuing operations, and have been separately presented under discontinued operations.

Retrospective adjustments to the historical statements have been -- have also been made to provide a consistent basis of comparison for the financial results. Revenues from continuing operations were $67.4 million, compared to $63 million in the second quarter of 2018 and $72.9 million in the third quarter of 2017. This gradual increasing revenue was primarily due to higher polysilicon sales volume offset by lower average selling prices.

Gross profit was approximately $12.8 million, compared to $25.2 million in the second quarter of 2018, and $26.8 million in the third quarter of 2017. Gross margin was 19.1% compared to 40.1% in the second quarter of 2018 and 36.7% in the third quarter of 2017.

The sequential decrease was primarily due to lower ASPs, partially offset by lower average polysilicon production cost. Selling, general and administrative expenses were $7.6 million, compared to $7.5 million in the second quarter of 2018, and $4 million in the third quarter of 2017. The year-over-year increase in SG&A expenses was primarily due to an increase of noncash share-based compensation costs related to the company's 2018 share-incentive plan.

R&D expenses were approximately $1.4 million, compared to $0.2 million in the second quarter of 2018 and $0.1 million in the third quarter of 2017.

R&D expenses can vary from period to period and reflect R&D activities that took place during each period. Other operating income was $0.1 million, compared to $0.5 million in the second quarter of 2018 and $0.1 million in the third quarter of 2017. Other operating income mainly consists of unrestricted cash incentives that the company receives from local government authorities, the amount of which varies from period to period.

As a result of the foregoing, operating income was $4 million, compared to $18 million in the second quarter of 2018 and $22.8 million in the third quarter of 2017. Operating margin was 5.9%, compared to 28.6% in the second quarter of 2018 and 31.3% in the third quarter of 2017.

Interest expense was $2.1 million, compared to $3.1 million in the second quarter of 2018 and $4 million in the third quarter of 2017. Foreign exchange gain was $1.9 million compared to $0.1 million in the second quarter of 2018 and loss of $0.1 million in the third quarter of 2017. The company realized exchange gain of $1.9 million occurred in the quarter due to depreciation of RMB against U.S. dollar, in relation to the exchange settlement of proceeds from the company's follow-on offering in the second quarter of 2018.

EBITDA from continuing operations was $14.8 million, compared to $27.4 million in the second quarter of 2018 and $31.9 million in the third quarter of 2017. EBITDA margin was 22%, compared to 43.6% in the second quarter of 2018 and 43.8% in the third quarter of 2017.

During the quarter, the company decided to discontinue its solar wafer manufacturing operation.

Results of the discontinued operation of the previous quarter and comparative quarters were presented accordingly.

Loss on discontinued operations was $22.4 million, compared to net income from discontinued operation of $2.7 million in the second quarter of 2018, and $9.7 million in the third quarter of 2017.

As a result, the foregoing net loss attributable to Daqo New Energy shareholders was $18.3 million compared to net income attributable to Daqo New Energy shareholders of $13.4 million in the second quarter of 2018 and $24.1 million in the third quarter of 2017.

Loss per basic ADS was $1.39 compared to earnings per basic ADS of $1.06 in the second quarter of 2018 and $2.28 in the third quarter of 2017.

Excluding the impact of noncash costs and expenses, such as costs related to the Chongqing polysilicon operations, share-based compensation costs and long-lived asset impairment, adjusted net income attributable to Daqo New Energy shareholders was $4.3 million compared to $18.2 million in the second quarter of 2018 and $25.6 million in the third quarter of 2017. Adjusted earnings per basic ADS was $0.33 compared to earnings per basic ADS of $1.44 in the second quarter of 2018 and $2.42 in the third quarter of 2017.

As of September 30, 2018, the company had $110.3 million in cash, cash equivalents and restricted cash compared to $155.3 million as of June 30, 2018.

As of September 30, 2018, the accounts receivable balance was $1,000, compared to $8,000 as of June 30, 2018. As of September 30, 2018, the notes receivable balance was $22.5 million compared to $17 million as of June 30, 2018.

As of September 30, 2018, total borrowings were $165.2 million, of which $119.4 million were long-term borrowings, compared to total borrowings of $171.5 million, including in $92.9 million of long-term borrowings as of June 30, 2018.

For the 9-month ended September 30, 2018, net cash provided by operating activities from continuing operations was $48.7 million, compared to $69.7 million in the same period of 2017.

And for the 9-month ended September 30, 2018, net cash used in investing activities from continuing operations was $90.1 million, compared to $19.9 million in the same period of 2018.

The net cash used in investing activities from continuing operations in the first 9 months of 2018 and 2017 was primarily related to the capital expenditures on the Xinjiang polysilicon projects. In addition, the company also purchased $15 million in interest-bearing short-term investments during this third quarter of this year.

For the 9-month ended September 30, 2018, net cash provided by financing activities from continuing operations was $96.5 million compared to net cash used in financing activities of $21.3 million in the same period of 2017. The increase was primarily due to net proceeds from our recent follow-on offerings. This concludes our prepared remarks. We would now like to turn the call over to the operator to begin the Q&A session. Operator, please begin. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

The first question comes from Philip Shen of Roth Capital Partners.

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Philip Shen, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [2]

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The first question is on the outlook for China and the demand. I think, Longgen, you mentioned that you think, we're at a bottom now with the policy change that could be happening with November 2 announcements. When do you expect the government to provide more concrete details around what the actual new policy might be? Do you think we could get it by the end of this year or we've heard, it could be before Chinese New Year as well?

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Longgen Zhang, Daqo New Energy Corp. - CEO & Director [3]

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I think, Philip, to answer your question, I think as I just mentioned that in Q1 to Q3 of this year, China has already installed 35 gigawatts. I believe full year of this year is expected to be around 40 gigawatts. And for next year, my expectation is around 40 gigawatts to 50 gigawatts. And it will be significantly increased from as seen in the previous forecast, only 30 to 35 gigawatts.

I think the number could be even higher if the actual policy is more favorable.

And as you mentioned that on November 2, NEA, I think have the forum, and basically I've seen the government is very support for the solar -- whole solar industry. And also, the feed-in-tariff will continue to be -- will not be stopped until 2022. Basically, I think the full -- for the future, I think it subsidized. The amount of the subsidized every year may be slowed down -- cut down. But for per law subsidize -- per unit subsidize will continue to go down. So we'll cover more projects. And like I topper on there, like other DG projects. So that's why, we believe, I think, the 13th Five Plan has everybody understanding. I think at least right now, the government may be increased to 210 gigawatts. We believe, maybe we're higher than that. So that's why, we do not think the new policy will come out within 1 month or 2 months. Because this new policy, I think, NEA have to work-in together with other ministries like financial ministries, like industry -- commerce industry ministries to allow the other, I think, government organizations to issue the new policy. So I believe the policy will come out maybe around the Chinese New Year, before or after.

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Philip Shen, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [4]

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Okay. Great. That's really helpful. As it relates to the pricing outlook, pricing, it feels like the declines might be slowing down. How do you see pricing, poly ASP specifically evolving in this quarter as well as into Q1 and Q2 of next year?

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Longgen Zhang, Daqo New Energy Corp. - CEO & Director [5]

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I think this quarter, our ASP, as you can see that is around -- our Q3 ASP is $10.79 without VAT. So basically, I think this is at or near bottom and with the new capacity coming online from China, the lowest cost producer and mostly, I think every people right now, claims for example, like GCL, I'm not going to mention other suppliers, they also claims starting the power productions as the new expansion. So, I believe, maybe in the Q1 next year or Q2 next year, the new capacity will come in. So we expect to see the more and more high-cost producers will have to shut down their capacity and exit the market. Due to the market or reship proceeding consolidation, I think it's possible to see temporary the polysilicon price go down to $10 per kg. But in the market, I think, is back to normal, we expect I think the pricing will remain around $11 to $12 during, I think, this quarter or even next quarter. I think, this quarter maybe between $10 to $11, I think, Q1, maybe around $11 to $12.

So Daqo, you know that we were fully, I think, ramp up, I think December of -- this year of December, we were rich, I think, for almost the 100% of ramp up on 3B. So for the Q1, therefore, I think, with all capacity, you can -- calculations maybe around -- annually around 36,000 tons. So we will continue to reduce our cost to $7.50 from right now currently $9 level. So that work further to improve our gross margin.

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Philip Shen, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [6]

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Okay, great. Longgen, you mentioned that capacity from the Q2 more expensive producers will likely go offline. Can you talk about how -- can you quantify, how much capacity you think could be permanently shut down from this downturn? Are we talking about 20,000 metric tons, 50,000 metric tons? You don't have to name the names necessarily. But it would be great to understand how much you see going away permanently?

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Longgen Zhang, Daqo New Energy Corp. - CEO & Director [7]

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I think based on the -- I think, the statistics, I think, China right now, let's say by the middle of this year, the capacity is around like 200,000 tons there, of which, what I'm thinking around like 140,000 tons, I think, is high cost and may be lower quality. So that capacity finally, will be wiped out. Of course, maybe in a certain percentage, some of the producer is state-owned company. So those company, it's difficult to shut down. The reason is because they have to run out of their cash. That's the question, maybe they can continue to get the banking loans. So what I believe, I think, SOE company, maybe the capacity is around like 50,000 to 60,000 tons, then in the private sector or we call, the public company now state-owned company maybe around 100,000 tons, they're definitely, I think, going to shut down.

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Philip Shen, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [8]

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Okay. That's very helpful. And then as it relates to your capacity expansion. Can you remind us kind of where things stand with the Phase 4A financing? Update us on how much you might need? And how you expect to fund the Phase 4A? And is it definite that you will do Phase 4A? Or is there a chance that you might wait for the recovery to be healthier and stronger?

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Longgen Zhang, Daqo New Energy Corp. - CEO & Director [9]

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T8:35 PM the Phase 4A currently is under construction. And the (inaudible) construction is almost, I think, above the levels. And because the winter is coming, so basically we were finishing the (inaudible) construction. And for the equipment procurement, we almost finished 70% of the contracts. We control the total investments is around CNY 2.9 billion. I think it's coming from what you know is CNY 3.2 billion. So then also, we got to be careful of the industrial slowdown, we got a pretty good, I think a negotiation with the supply and the payment term. Basically, I think, I can tell you that $2.9 million the payment that I think around the CNY 5.9 million -- around like CNY 590 million we'll pay this year, and around the CNY 1.4 billion, we'll play next year, then rest of them will go to 2020 and '21. So basically, we're thinking now with our own cash as the deposits and operating cash flow, I believe, and we also have the banking facilities available. Right now, we have $500 million banking loan facilities from Bank of China, $5 million banking loans from China Merchant Bank. So basically, our working area, I think we still can suppose to continue to expansion. Of course, we also were evaluating the whole market of what's going on. But basically right now, yes, we're on our way to reach the target. I think planning to starting pilot production in October, 15 next year.

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Operator [10]

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The next question comes from Gary Zhou of Crédit Suisse.

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Gary Zhou, Crédit Suisse AG, Research Division - Research Analyst [11]

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I have 3 quick questions. So firstly, the management has talked about the near-term pricing outlook for the polysilicon. So given that probably in the next few months, as we have a lot of new low cost Chinese capacity to come online. So given this kind of change in the global poly cost structure, so as mentioned, has more longer-term price outlook for the polysilicon, probably in -- for next year and also for 2020? And the -- secondly is that, does management has an estimate for the mono away for its market share in 2019? And how does the management expect the expanding of mono away for market share to support our ASPs? And last question, quick one, does management has any estimate on the global solar demand for this year and also the next year?

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Longgen Zhang, Daqo New Energy Corp. - CEO & Director [12]

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Gary comes from CS from Hong Kong. The first question is about the ASP. For the near term and the future, basically, you know, I think without the Chinese new policy come out, what, I think, I believe, okay, this -- I think lower -- today, the lower ASP and also, not only consolidation, the China, I think, solar industry, but also I think it will cut the import from abroad, and for those foreign producers, the costs higher than $13 -- $12, definitely I think have to shut down. So basically, what I'm thinking is even without the Chinese new policy. In Q4 right now, I think the ASP, of course, Daqo is a little different, and I will answer your second question because mono and multi, the price is different. But I'd say averaged speaking, we are right now, after 3B, our mono is 80%. So basically what I think is for Q4 to Q1 next year, the price should be around $11 to $12. Unless the new policy maybe stimulates the production in China then the price definitely will back to $13. For the whole year of next year, I think the price should be -- second half of next year should be around $12 to $13. So beyond that 2019, I think, for the grid parity, for the cost right now, the industry cost, I believe should be around $12 to $14 in range. That's to answer your first question. Second is for the mono and multi. Right now, for the mono price, it's around 83 CNY per kg to 84 CNY per kg with VAT. And for the multi, it is around 76. So the difference between multi and mono is not too much right now. But we still focus on the quality so after finishing 3B, our mono accounted for 80%. So as soon as we're finished with 4A, our mono-silicon will be 90%. So that's why our ASP should be most close to the mono silicon price.

I think for your third question about the demand -- the global demand, what I think is it looks like the Chinese new policy has come out, it doesn't matter this year or early next year, definitely next year, China, I think, total installation will be around 40 gigawatts to 50 gigawatts, even I think maybe even higher. And plus their 13th Five-Year Plan will increase -- dramatically increase. So China definitely is the key player in the solar industry. Plus, I think, Europe, I think, in a more of the tariff than also the U.S., the South Africa, and the South America and India, I think, it definitely beside without China even global market I think continue to -- the demand continue to increase because the price continue to go down. The installation price continue to go down. So grid parity, we can see -- I think globally we can see. So basically, I think next year, total global installations what I'm thinking maybe around 115 gigawatts to 120 gigawatts. And year 2020, maybe reached to 140 gigawatts, that's maybe little optimism. So the silicon demand because of the mono-silicon demand and percentages continue to go up, but while cost of the silicon will continue to go down. So what I think next year -- the silicon will be around -- the consumption will be around like 370,000 tons to 380,000 tons. By 2020, I think we'll reach around 420,000 tons. I think that that's -- I think my figure, Gary.

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Operator [13]

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The next question comes from Wei Feng of Citadel.

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Wei Feng, [14]

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Most of the question -- just wondering, can you comment on the inventory level in the supply chain? And also what -- when do you think the Chinese going to announce the new target for 2019 and 2020?

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Longgen Zhang, Daqo New Energy Corp. - CEO & Director [15]

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Okay, basically, first of all, you kind of Wei, I think for the inventory, for whole right now, the Chinese -- I think the supplier right now, the inventory almost, I think, closing to 0. If you look our end of the quarter, especially right now, and order -- right now, the order, we still cannot feed the order right now -- based on right now the production. And what I think right now, almost either the, I think, the weaker producer right now is just in time 0 inventory, the reason because this is still expectation, the silicon price go down. So that's why the inventory is lower. Then I think even sale module because continued price go down, so whole the industry in the middle stream, the inventory, I don't think is too much there. Unless the Chinese new policy come out, then they're going to beat up the inventory. So to answer your second question, we are in the Chinese new policy come out as I just mentioned that, because this time, the MEA is very prudent and they do -- they have to follow to coordinate with others governments -- other government organizations together to issue new policy. So that involved a lot of stuff, like I said, 13th Five-Year Plan. And you see the tax, the tax will be cutting. All these, I think, together. So what I think new policy will come out not -- I'm not focused end of this year, maybe around Chinese New Year either before or after.

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Wei Feng, [16]

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And another question on import. Can you tell me the monthly run rate on the import poly? And what do you expect the run rate if poly prices $12 next year? Monthly run rate.

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Longgen Zhang, Daqo New Energy Corp. - CEO & Director [17]

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I think that right now, the import already has slowed down. I think, if you look at the figure, I think, the data, I didn't look carefully at the figures, but basically I was told right now, the 3 major foreign producers right now, there is only one right now, still have capacity running in Malaysia, and the rest of them, I think, they are almost, I think, shut down by the end of this month. So I do not think further on right now, the current market situation, selling price around the $10 and $11 -- between $10 and $11 per kilograms. I think, the foreign producers will continue to export silicon to China because there really is their cash cost. So basically, I think in this scenario right now, that's why I don't think the import -- the silicon will come back. I don't think so. Because that's why, unless the price go back beyond $13, it's possible, on the condition, I think the demand is so hot and quickly come back and for the midstream to beat-up inventory. Then that will happen on the second half of next year. The silicon price maybe come back beyond $13.

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Wei Feng, [18]

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Also can you about talk, maybe Ming. Can you talk about operating expense next year, quarter run rate excluding stock compensation?

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Ming Yang, Daqo New Energy Corp. - CFO [19]

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It should be in the maybe $5 million -- $4.5 million to $5.5 million levels, excluding stock-based comp.

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Operator [20]

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

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Kevin He, [21]

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

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Operator [22]

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