The EBITDA difference of making polysilicon in or outside China

While China-based polysilicon manufacturer Daqo New Energy reported another record low in production costs, the polysilicon division of market leader Wacker slid into the red with its EBITDA in the fourth quarter (Q4) of 2018.

Daqo recorded cash costs of only US$6.64/kg for its polysilicon plant in Xinjiang; manufacturing costs including depreciation were US$7.94/kg. The company achieved a whopping EBITDA margin of 39.1% in Q4.

In contrast, Wacker Polysilicon’s EBITDA margin continued its dive from +16.2% in Q2 to +2.5% in Q3 to -10.2% in Q4 (see chart) because its German factories still ran at full capacity and its U.S. plant reached 100% utilization in December to build up inventories while sales were weak.

Daqo’s EBITDA margin in Q4 would be 22.5% if it were not skewed by $12.5 million of other operating income, which mainly consists of cash incentives by the local government. However, the company’s “normal” EBITDA margin still exceeds those of non-Chinese competitors by 20 to 25 percentage points. This is mainly due to very low, subsidized electricity rates in Xinjiang.