"The polysilicon industry has entered a knockout phase since this year," said Lan Tianshi, Co-CEO of GCL Technology (3800.HK), summarizing at the company's mid-year performance briefing for 2024 held on August 30.

GCL Technology's financial report disclosed on the evening of the 29th showed that in the first half of this year, the company achieved a revenue of 8.863 billion yuan, a year-on-year decrease of 57.7%; it suffered a loss of 1.48 billion yuan in the first half of the year, compared to a net profit attributable to the parent company of 5.518 billion yuan in the same period last year.

The financial report indicated that the main reason for the loss in the first half of the year was the significant decline in the prices of polysilicon and silicon wafer products, as well as the inventory impairment caused by the decrease in product selling prices.

"Currently, the company's inventory is the lowest in the industry," Lan Tianshi stated during the online performance briefing, adding that in the first half of 2024, the inventory of polysilicon increased significantly after April, and as of now, the industry's inventory is close to 300,000 tons, exceeding 120GW. "In the first quarter of this year, the production arrangement of enterprises was relatively high, but entering the second quarter, especially after late April, the selling price of silicon material plummeted, with the average selling price breaking below 40,000 yuan/ton."

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"From a cost competition perspective, GCL's FBR method (Silane Fluidized Bed Reactor, granular silicon technology) has already entered the most advantageous position in terms of cash and total cost. With an annual demand of 500GW, there may only be 4 to 5 companies in the industry that can truly meet the demand and possess industry competitiveness in the future," Lan Tianshi indicated.

According to Lan Tianshi, in terms of capacity layout, the company's four major bases have reached full capacity production of 420,000 tons, and the actual shipments in the first and second quarters of the first half of the year were maintained at over 60,000 tons. Starting from May in the second quarter of this year, the company proactively reduced the utilization rate, carried out regular summer maintenance for the Xuzhou and Leshan bases, and conducted partial cost-reducing and quality-improving technical reforms for the Baotou and Hohhot bases. The maintenance period was from June to July, and the capacity ramp-up period was from August to September. "The company's long-term order coverage has accounted for more than 85% of the full capacity production from 2024 to 2026, and new expiring long-term orders will be continuously announced afterward."

"Overall, the maintenance period of the company's bases spans from June to September," Lan Tianshi told investors during the online performance briefing, explaining that the company's four bases will undergo maintenance one after another, with the Baotou base in Inner Mongolia being the first to complete the technical reform and maintenance, and the Xuzhou base in Jiangsu being the last. He said, "After the completion of the technical reform and maintenance, the cost (cash cost and total cost) of the company's four major bases will significantly decrease compared to the first half of this year, and the product quality will be improved after the maintenance."

Regarding the outlook for silicon material prices, Lan Tianshi believes that the price of photovoltaic silicon wafers has recently increased, and industry self-discipline is being strengthened. The current silicon material price has already broken below the cash cost of all enterprises, which is an unreasonable phenomenon. However, the inventory of the silicon material industry is currently decreasing compared to June, and when the inventory decreases to a reasonable level, the price of silicon material will return to normal. "Considering that the third and fourth quarters are the traditional off-season for the entire industry, it is estimated that the price of silicon material may rebound after the first quarter of 2025."

"Against the backdrop of the current downward photovoltaic market, the company has not reduced its investment in R&D," Lan Tianshi introduced, stating that in the first half of this year, the company invested 718 million yuan in R&D, with a total of 1,398 patent applications and 1,067 authorized. "The company has consolidated its moat in granular silicon technology for three consecutive years, protecting intellectual property rights and key core equipment."

It is worth mentioning that in June this year, GCL Technology announced that it has reached a cooperation with the UAE sovereign fund Mubadala, and their subsidiaries will explore cooperation in developing the first polysilicon project in the UAE. The management of GCL Technology also answered questions from investors about the Middle East project at today's performance briefing."Overall, the costs of the company's overseas Middle East projects are controllable and in line with the company's expectations," said Zhu Gongshan, Chairman of GCL Group, at today's performance briefing. For instance, the energy costs negotiated are lower than the energy costs at domestic bases, the land for the Middle East projects is leased rather than purchased, and taxes are generally more favorable than in the domestic market. In the future, operational costs will be reduced through digitalization and artificial intelligence.

"The photovoltaic industry's 'unusual' state of rapid progress in the past three years is 'abnormal'." Towards the end of the mid-term performance briefing, Zhu Gongshan stated that he suggests all practitioners return to the mindset of a conventional manufacturer. As a material supplier, the company's strategic positioning moving forward is to provide reliable quality products to downstream enterprises while maintaining a reasonable profit margin.