Daqo New Energy's Q4 2024: Navigating Contradictions in Pricing, Inventory, and Production Costs

These are the key contradictions discussed in Daqo New Energy's latest 2024Q4 earnings call, specifically including: Pricing and Cost Structure Expectations, Inventory Management, Cash Cost of Production, and Pricing Outlook:



Production Volumes and Market Challenges:
- Daqo New Energy reported an annual polysilicon production volume of 20,568 metric tons in 2024, meeting their guidance of 20,000 to 21,000 metric tons.
- The company faced an excess capacity in the solar PV industry, leading to sharp price declines across the value chain, with polysilicon ASPs decreasing significantly from USD 11.48 per kilogram in 2023 to USD 5.66 per kilogram in 2024.
- This decline was driven by a challenging market with overcapacity and prices falling below production costs.

Inventory Management and Financial Impact:
- Daqo New Energy sold 181,362 metric tons in 2024, with a cash balance of USD 1 billion and short-term investments of USD 10 million by the end of the year.
- The company recorded a noncash provision for inventory impairment expense due to significant drops in ASPs, leading to a negative gross margin of 20.7% for 2024.
- The financial impact was primarily due to the sharp decline in product prices, which affected gross profit and overall financial performance.

Operational Strategy and Cost Reduction:
- Daqo New Energy operated at a lower utilization rate of 40% to 50% of their nameplate capacity during the fourth quarter, with cash cost declining to USD 5.04 per kilogram, a 6% quarter-over-quarter decline.
- The company intensified efforts to reduce inventory and sales volumes, reaching 42,191 metric tons in Q4, exceeding Q3 by 4,001 metric tons.
- The cost reductions were achieved through improved operational efficiency and optimizing production processes, which helped maintain a strong financial position.

Pricing Outlook and Industry Measures:
- Daqo New Energy expects polysilicon prices to increase in the near term, with the potential for a price uptick in the second quarter of 2025, driven by market shortages and regulatory changes.
- Industry discussions on self-regulation measures were initiated, and the solar PV industry is anticipating more balanced supply and demand conditions, which could lead to higher prices.
- This outlook is fueled by seasonal factors and regulatory changes aimed at mitigating irrational competition and enhancing industry stability.