REC Silicon ASA

OSE:RECSI

Earnings Call Transcript 2018-Q1

[Tore Torvund, Chief Executive Officer and President]

Okay, so now it's 8:00. So welcome to our presentation for the first quarter of 2018. And as usual, it will be James and myself. We will then give you a short update on our numbers this year.Let me start with the highlights. I say we got an EBITDA of $14.6 million out of revenue of $69 million. So in fact, we have an EBITDA margin of 31% in this quarter, and this is the best number we have had for the last 3 years. In fact, the last time we were above these numbers was in Q1 in 2015. So basically, over the last 36 months, it has been, let's say, a struggle to have good numbers from REC Silicon.There's many reasons why we have these numbers. One is the fact that we had very low cash cost in Q1, $9.40. And definitely, we continue to deliver strong numbers in the silicon gas sales, 897 metric ton this quarter, towards a guidance of 820.The cash balance increased by some $7.5 million, and that in spite of the fact that we increased our inventory by some 600 metric ton. And we also, as we said last quarter when we met with you, we were able to complete a refinancing of the company. We have now $110 million, with a maturity in 2023, and we were able to do this without asking our shareholders for any equity.So basically, when we look to the company now, when -- the company became, as we discussed today, a spinoff of REC Solar, we had a debt of approximately -- or somewhat above $300 million, now today, we have a net debt something about above $80 million. So we probably have a much better debt structure in the company now than when we started as a polysilicon company back in 2013.The Yulin JV continued to ramp up. We made about 800 metric ton in Yulin. We are definitely not at full capacity. We're still working towards full capacity in the second half of this year. And as we reported last time, but still in this quarter, we were also able to then deal with the debt issue in Yulin. So basically, a very good quarter for REC Silicon now in Q1.And when we look to the metrics, you will see that we then increased inventory by 619 metric ton. The fact -- the reason why we did it is that we made more than anticipated out of Moses Lake. And the reason for this is that, as we said, Silane III, one of the units, had been running now for 22 months. We decided to shut it down, and at the same time, start up the second unit. We decided, due to the market condition, that we wanted to produce somewhat more than what we had guided on. So in fact, we produced about 20% more than what was guided. And that's why I will come back to the cash cost, but the main reason why we have a low cash cost is, basically, because we produced more polysilicon. The reason why we did this is that we see that the market is strong, that there is more demand for polysilicon, but we were not able to move this polysilicon to the market. It takes about 45 days from production in Moses Lake until it reach the market in Taiwan, so this will be then sold in Q2.You will also see that we produced more, sold more semiconductor, and I will also come back to this later in my presentation.The -- we have added one more slide this time, just to explain what has been the cash cost compared to what was guided. If you go back to Q4, we were about $0.80 below what we guided. The main reason for this was somewhat higher production. The reason why we are then much lower in Q1 is that, as I said, we produced 20% more polysilicon than what we guided. This just show that if we were able to have a full capacity in Moses Lake, I think James has estimated that the cash cost would be sub-$8 a kg, and it just show how efficient our FBR technology in fact is if we had access to a normal market.Let me now guide $13.40 in Q2. It is basically because it will be 27% less production in Q2 compared to Q1 because now we are having a turnaround in one of the silane unit, and the production then will depend upon just silane unit, and we also anticipate $3 million to $5 million to make the turnaround. So that would be added to the cost. That's, let's say, something which we had to add every 2 years, but that we'll then hit the guidance for Q2. So it's not that this is the long-term cost structure, but it will be for the second quarter of 2018.And at the same time, the MGS, as we have already reported on, is somewhat more expensive now than it was in 2017.So then I will leave to James to go more into details of the numbers, and then I will come back to the market and other issues afterwards.

[James A. May, Chief Financial Officer]

Good morning. It's fun to be reporting good results this morning. Due to changes in the company's organization structure, our operating strategy and our internal performance measurement system, the company is now reporting 2 operating segments: Solar Materials, which represents the company's Moses Lake, Washington manufacturing facility; and Semiconductor Materials, which represents the company's Butte, Montana production facility. The results in these operating segments include revenues less the cost of manufacturing, excluding depreciation.In addition, we're reporting results for Other, which includes primarily all of -- all costs not directly related to the manufacturing of product, including general and administrative expenses to support operations in the United States as well as expenses associated with the company's headquarters here in Norway.Eliminations includes the reversal of transactions between group members and with associates. In this case, these are transactions with our Yulin JV in China. We first reported segments with the presentation to creditors when we issued our bond in March of 2018. The numbers here for 2017 are consistent with the numbers we presented at that time.In Q1 of 2018, the most significant change in our profitability was the EBITDA contribution of $8.4 million for our Solar Materials segment. The increase is due primarily to the low cash cost of manufacturing discussed by Tore a few moments ago as well as increases to sales prices realized on granular polysilicon, which I'll cover on the next slide. Semiconductor Materials EBITDA contribution was $17.5 million and continues to reflect high sales volumes in silicon gases as well as increasing volumes of semiconductor-grade polysilicon sales.As Tore mentioned, we've now had 6 consecutive quarters of positive and improving EBITDA.At these levels, it continues to demonstrate just how successful we've been in adapting to the difficult market conditions that we face. Despite being shut out of markets in China and, as a result, operating at FBR at less than full capacity, we found ways to control costs and improve our efficiencies. These accomplishments have allowed us to maintain the company's liquidity, meet our debt obligations and, as we above mentioned, to refinance the company's debt.Revenues declined from $78 million to $69.6 million due primarily to lower polysilicon sales volume, while EBITDA increased to $14.6 million during the quarter, primarily due to lower manufacturing costs.In the Solar Materials segment, segment revenues decreased by about 12%, and that is almost exclusively due to lower polysilicon sales volumes, which declined from 3,426 metric tons in Q4 to 2,563 metric tons during this quarter.As you'll recall, we had substantial inventory declines at the end of 2017, and from that point, granular polysilicon sales are now limited by production volumes. However, as I pointed out in the last slide, earnings from the solar segment improved due to increases in average sales price realizations as well, which were 17.5% higher than we realized during the fourth quarter of 2017. This increase is primarily due to a higher mix of higher grades of granular solar polysilicon and lower availability of the lower grades, while the underlying price for solar prime material went up by about 4.8%.FBR cash cost were $1.70 below the guidance we've provided on February 9. Primary reason for this difference is high FBR production volumes of 3,127 metric tons, compared to guidance of 2,620 metric tons. This is 19.4% higher than guidance and was due to the operation of both Moses Lake silane plants during the transition between silane plants to perform planned maintenance. This clearly demonstrates the cost competitiveness of our FBR technology.Furthermore, when you consider that we operated at only about 63% of the FBR capacity during the quarter, imagine what our cost would be if we can run full out.As a counterpoint, Tore mentioned that our production volumes will return to about 50% of capacity and we'll have an additional $3 million to $3.5 million of expenditures to perform the maintenance on the nonoperating silane plant at Moses Lake, which means that our cost per kilogram is expected to go up to $13.40 per kilogram and will impact our earnings during Q2 of 2018.In the Semiconductor Materials segment, revenues decreased by 10%. Again, this is primarily due to polysilicon sales volumes, which declined from 518 metric tons to 342 metric tons during this quarter. This decrease is a result of our decision to focus on semiconductor grades of polysilicon and limit the production of solar materials at the Butte facility. However, it should be noted that sales of semiconductor polysilicon increased to 233 metric tons, and Tore will discuss the growth trend in semiconductor polysilicon here in a few moments.In addition, due to the higher mix of semiconductor grades sales, the average polysilicon prices for the semiconductor segment increased by approximately 29%. It's almost exclusively due to mix, and it's due to lower sales of solar-grade polysilicon.Demand for silicon gases remained strong. As expected, silicon gas volumes were near guidance at 897 metric tons during the quarter. However, prices for silane gas declined by about 7% compared to the prior quarter. And as Tore mentioned, this is due to a new framework distribution agreement, which offers higher discounts to maintain volumes.While the price of silane is expected to fluctuate based on product mix and maybe some competitive pressure, we do not expect substantial decreases in silane prices for the remainder of 2018.Other in Eliminations includes net cost of $10.8 million during Q1. This is higher than the run rate of $8.2 million per quarter for 2017, and the higher -- the increased cost is due to expenses associated with our efforts to monetize noncore assets that we've indicated in the past as well as to prepare to refinance the company's debt. We expect the net cost and other eliminations during Q2 to return to levels that are near those demonstrated during 2017.Consolidated EBITDA for the quarter was $14.6 million. In summary, the increase in EBITDA is a result of continued high silicon gas sales volumes, increases in average price realizations for polysilicon and, especially, the record-low FBR cash cost of $9.40 during the quarter.During the first quarter, our operating activities generated $7.4 million in cash. I'd like to point out the fact that EBITDA during the quarter is the largest contribution to net cash flows. EBITDA again was $14.6 million. In addition, the effects of a weaker U.S. dollar contributed about $3.6 million to operating cash flows. These were offset by an increase in working capital investment of $6.1 million, of which the major component was $6.9 million due to increased inventories. In addition, the company paid $1.8 million of interest and made a $2.7 million payment associated with our agreement to resolve the equity contribution to the Yulin JV, which we announced on February 1 of 2018. The remaining $200,000 was due to changes in other assets and liabilities.Cash flows from investing activities for Q1 of 2018 netted to 0 and are not reflected on the slide. However, investing activities included $300,000 of capital expenditures, $200,000 increase in restricted cash balances, and they were both offset by an asset sale -- proceeds from an asset sale of $500,000 for the quarter. In total, cash increased by $7.4 million to $112 million on March 31.Nominal debt increased by $4 million during the first quarter to $194 million, which is exclusively a result of the effects of a weaker U.S. dollar on NOK-denominated debt. Nominal debt decreased by $3 million to $82 million. This decrease was a result of the currency exchange effects that I just pointed out as well as the increase in cash during the quarter of $7.4 million. There are a few changes with respect to our expectations on the indemnity loan or on the tax examination by the Central Tax Office. As a reminder, the timing of the payment of the indemnity loan continues to be uncertain. The loan was callable on February of 2016, and it has not been called, but we don't believe it will be called before the second half of 2018.With respect to the tax examination, we continue to expect a final notice will not be received before the second half of 2018.As Tore and I have both mentioned, the company successfully completed the issue of a $110 million senior secured bond on March 23 of 2018. Because this bond settled on April 13, all of the impacts of this transaction will be reported with our Q2 results on July 19. Needless to say, this transaction makes most of the information I discussed on the previous slide obsolete. Summary of the transaction resulted in additional cash of $110 million, which was used to retire the existing debt in the company of about $112 million, which included accrued interest. And as a result, we have $57 million of REC03 remaining to be paid, which will be paid on May 3, and only about $2 million of the U.S. dollar convertible bond, which will be paid on September 11 of 2018.After the payment in September, the company will have $136 million of nominal debt, $110 million of the new bond, plus $26 million of the indemnity loan. This represents a reduction of $58 million compared to the nominal debt that I just pointed out on the previous slide. And this will leave us with approximately $50 million in cash, which is sufficient to support our operations as well as to repay the indemnity loan should it be called.Tore will now continue with the company's market outlook.

[Tore Torvund, Chief Executive Officer and President]

Okay. Thank you, James. Let me then start with the market for solar.Let's say, there is a lot of different estimates for what will be the demand for solar panels in 2018, at least as between no growth at all, 95, to some 120 gigawatts, which definitely a huge variance between the different analysts. Just remember that when we were in 2017, they -- basically, they always said that there will be no growth between 2016 and 2017.In hindsight, the market grew 25%. So let's say, the analyst has not had a very good, let's say, estimate of what will be the growth. So basically, let's say, it could be 100, GTM says 103, it could be 120. Definitely, if it's 120, the market will be different than if it is just about 90 -- 103.The growth between '16 and '17 was, as I said, 25%. About 100 gigawatt was installed in 2017. Overall, it is today installed about 400 gigawatt on a global basis. That means that for one year -- in fact, 25% was installed in just one year.When you look to the outlook, basically, you see that China is definitely very dominant. I'd say China came out with their installation capacity -- or installation made in Q1. It was 22% higher than what was estimated. So China is continually increasing the number of gigawatt installed. China today has about 130 gigawatt installed. And that means it is -- the second-largest market so far is the U.S., where you have a cumulative installation of some 50 gigawatts. So basically China is, today, twice, more than twice the installed capacity of what has been -- what is the second, which is the U.S.In this estimate, you see, basically, that China will -- let's say, are estimated to reduce their yearly installation. What is very attractive is that a lot, what we call the rest of the world, is then gradually increasing. That means it's more countries are now installing. So in fact, going forward, rest of the world will be the second-largest market. Then Europe is coming back. The U.S. is -- has been reduced from '16 to '17. I expect it to have a flat in '18 and then increase, and India is coming back. Basically, as you see, there is a tremendous growth expected in this order, which definitely will also then make it much more attractive in the polysilicon market because there is very limited new capacity coming on in spite of what has been announced. The only announcement which happens now is in China, and we know that there is a lot of announcement which never will be realized.As you know, we have a lot of experience now working in China. So let's say we expect that there will be a very good balance between the polysilicon production and the demand going forward.In the short term, we expect that the second quarter will be strong. As you see, the FiT, the 2017 FiT in China will expire by the end of June. That means that we expect a strong demand in China for solar panels in this quarter. And in fact, you see that it is considerably higher between Q1 and Q2. China will also become strong in Q4 because it is now very clear from the Chinese government that the FiT for 2018 will, in fact, expire by the end of 2018.Concerning India, there is -- as I say, this is a business where you have trade wars everywhere. China and India has had their -- or they have their trade concern, so India is uncertain. What we see is that now, the inventory build in the U.S. is already depleted, and U.S. has started to buy solar panels from outside again in spite of the 30% duty which was imposed now in February this year. So overall, we expect a strong Q2, we expect a strong market in 2018.And as you know, we are not able to get access to the market in China, so that means that, basically, we compete in -- or we move almost all our polysilicon, solar grade polysilicon, to Taiwan, which represent about 7% of the market. We continue to discount, so basically we prioritize to take market share, and that means that we have the lowest cost of polysilicon. What we have experienced now that -- is that when customers start to get used to using our FBR, they see a tremendous advantage of using FBR. The biggest customer we have in Taiwan now is using between 45% and 50% FBR together with [ chunk ] . And we are gradually increasing the blend also for other customers we have in Taiwan.So basically, the fact that we sell at a discount and the fact that when customers start to use FBR, they see all the other advantages by using the FBR, we are gradually able to increase our customer base in Taiwan. In fact, we were able to increase the price of prime granular by 4.8% from Q4 to Q1. We basically entered into the contract in the beginning of the quarter, so we were not very much hit by the softening around the Chinese New Year and that's why we were able to increase the price. And we expect that the Q2 will be in line with what we have achieved in this quarter.You will see that, in Q1, we increased our production to above 3,000 metric ton because we had the parallel operations of Silane III and Silane IV. In fact, we were then operating at 63% capacity. That means if you make your calculation, that the overall capacity of Moses Lake now is about 18,000 metric ton if we were able to run at full 100% capacity.We built 600 metric ton in inventory. As I already said, the reason why was not that the market didn't take it, it was because we -- when we make polysilicon in the U.S., it take about 6 weeks to move it from the U.S. to Taiwan, and we didn't have more product in Taiwan in Q1. Our intention will be to sell most of it in Q2, so we guide then that the production will be about 2,280, while we will sell between 2,500 and 2,800 metric ton in Q2. And that means the inventory should be reduced by 300 to 500 metric ton in this quarter.Concerning, let's say, since we now have started to report semiconductor activity as well, you'll see that we have a very strong growth in our semiconductor polysilicon sales out of Butte. We grew the sales by 18% from Q4 to Q1. And we expect to continue to grow the sales out of Butte. The semiconductor market is very strong for the moment. And we have now, more or less, full contracts for the whole year for the semiconductor-grade polysilicon in Butte. And if you expect -- let's say, the prices typically in solar now is between $15 and $17 in the open market. The highest-grade polysilicon in -- of Butte, we achieve $60 to $80 a kg, so it's a completely different market than what we see in the solar grade. And definitely, it's also much more qualification needed to be able to enter into this market. So we are very, let's say, satisfied with the development in the polysilicon market out of Butte.And on the silicon gas side, we continue to deliver strong numbers. We guide then 910 metric ton of silicon gas in Q2, which is in line with what we have delivered in Q1.Let me then also give you an update on this trade war or the trade -- different trade wars, which affect this business and which affect then the U.S. And it has been -- someone has said, why do we spend so much time on this trade war. The reason is that if it had to be -- if we found a solution with China out of the U.S., basically, our bottom line would increase between $100 million and $150 million a year, and that's the cost to this company not having access to the Chinese market. That's why, let's say, we have to spend time on, let's say, trying to, let's say, give necessary knowledge in Washington, D.C. about the harm this trade war has to the U.S. industry -- or our industry. We are not the only company which is hurt by this trade war. We have Wacker, out of, let's say, Wacker of Germany, has invested $2.5 billion in polysilicon in the U.S. And we have Hemlock, which is a, let's say, company owned by Dow Chemicals, which also is hurt by this trade war.The development, let's say, since last time, let' say, we have now, let's say, 2 layers of trade war in the U.S. We have what we call the Section 201, which was implemented in -- now in February. It was then communicated by President Trump in January, and basically, it is 30% tariff on solar panels not only from China, but also from all other countries that makes solar panels.It was then implemented in beginning of February. It is 30%, and then it will be reduced by 5% every year and will then disappear 4 years from now. In addition, 2.5 gigawatt of sales is exempt from this trade war.It was much less severe than what was anticipated. We also have to remember that the demand for solar panels in the U.S. is about 110 gigawatts. About 10% is the capacity in the U.S. So still, 90% of the solar panels needs to be imported to the U.S.The reason why the polysilicon companies have some hope to find a solution is what was said in the communication from President Trump, saying that, let's say, the Secretary of Commerce was asked, together with Mr. Lighthizer, to find a solution to what we call the AD/CVD, which is then the trade war which has been there since 2011.Concerning the 201, it has been hundreds of demand for exclusion from this 201. That means companies try to convince the government that, yes, we have 30% duty, but it should not affect the products we are making. So it has been hundreds of these requests. These will be, basically, communicated in the months to come if there will be any exclusion. And the latest one is, as was announced the other day, is that SunPower, which is a high-end solar power company which has a production in Malaysia and Indonesia, they have asked for exclusion. They were, let's say, fiercely opposed the 201, but they have now an agreement to buy SolarWorld, and SolarWorld which own the AD/CVD. Let's say, we are uncertain what that will mean for, basically, the AD/CVD, which I will cover in the next.So there's a lot of moving parts here and a very dynamic situation overall in what we call the 201.On the AD/CVD, there is no new development. Panels made in China is now due to have, let's say, a duty of 62%. So that means every solar panel that is coming from China have to pay 62% in duty. It was also a strong lobbying to try to include solar in what we call the Section 301, which is the -- protects the intellectual property in the U.S. towards China. That didn't happen, so there is only -- or there is 2 layers of duty now between the U.S. and China.One reason to be at least a little bit optimistic is that it was just communicated yesterday that Secretary of the Treasury, Mr. Mnuchin; and the Secretary of Trade, Mr. Lighthizer, is heading for China on May 3 to start to discuss trade. And the common view now, in the U.S. at least, is that President Trump has now put forward a tremendous amount of duty towards the Chinese to be able to find a solution for what he called fair trade. Hopefully, that will be something which might result in some resolution. And definitely, what we have told the U.S. government is that if we were to be able to solve the trade war for polysilicon, it would immediately increase the export value to China by approximately USD 1 billion, so that will help the trade deficit between the U.S. and China. And we would be able to employ about, let's say, the 3 companies together, about 1,000 to 1,500 new workers in what we call high-paid manufacturing job, which is also what President Trump is always talking about.So we continue to work on this. We spend time on it. We work very closely together with Wacker and Hemlock. And as I said, this is a very important part of the success we might have in this company if this trade war were to be solved.Let me then give you a short update on the Yulin JV. As said, on February 1, we announced that we have found a resolution to the equity contribution in China. We are now down to a 15% ownership, but we have the opportunity to increase back to 49% 3 years from now, that means in 2021. We have paid the interest this quarter. And in addition, we have paid $2.1 million out of the $10.4 million, which we are due to pay for the settlement. And, let's say, the work or this cooperation with Yulin JV continue to be very, very positive.In terms of the operational performance in Butte, we communicated last quarter that we intend or our ambition is to produce about 8,000 metric ton. The sign basis for Yulin is 20, so it's a little bit less than half our capacity in this year. We produced about 800 metric ton of granular in the first quarter, and we intend to start the second silane unit and the rest of the FBR reactors now in Q2 and through the second half of 2018.We also have started the Siemens reactors. As I have told you earlier, Yulin has 19,000 metric ton of FBR. It's about 300 metric ton of Siemens, and we have 500 metric ton of silane loading capacity. We will then -- we have already started the Siemens production, and we are going to produce a high-end semiconductor-grade polysilicon out of our Siemens reactor in the second half, and this will be the first time this quality will be produced in China.So we are very satisfied with the development of Yulin, in cooperation with our Chinese joint venture partner, is excellent. And definitely, we get a lot of experience how to operate in China. We have now 35 U.S. employees working together with our employees in -- the JV employees in Yulin. So this continue to develop according to what we anticipated, and the total investment is well within the budget of USD 1.2 billion.The guidance then for the next -- or this quarter, 2,260 metric ton of FBR. As I said, the cash cost will be considerably higher in Q2. Well, there's 2 main reasons is that we have lower production, and we have $3 million to $5 million in turnaround cost for Silane III, which will be then put into the Q2 numbers here. Semiconductor, somewhat higher than what we made in Q1. Silicon gas, 910 compared to short of 900 in this quarter. And the capital expenditure for the year is still $4 million.So that's the first quarter of 2018. We are very satisfied with the numbers, and we hopefully are able to continue the trend we have now started over the last year, having positive EBITDA every quarter.If there is any questions, I will be happy to answer them.

[Fredrik Steinslien, Analyst]

Fredrik Steinslien from Pareto Securities. First of all, congrats on the good results. Interested to hear some thoughts on how you're thinking about when to revert to full production at Moses Lake, and how is your thinking on that time line shift over the past 3 to 6 months?

[Tore Torvund, Chief Executive Officer and President]

Let's say, it will definitely depend a lot about what is the end market. Let's say, even though we do not have access directly to the Chinese market, let's say, China represent now 80% of making solar panels, but they install about half of the world's solar panels on a global basis. If we would have 120 gigawatt, definitely, there will be more demand in Taiwan because a lot of what is produced in Taiwan finally end up with someone in China anywhere -- anyway. So if the market continue to grow, as we have seen between '16 and '17, we prepare ourselves to be able to meet the demand in the second half, with more than one unit running. What we also have experienced now in Q1 is that we can't run -- let's say, normally, we have been running one unit at full capacity. In Q1 we ran 2 units at 63% capacity. We have now learned how we can calibrate the 2 units, so we are much more flexible. So if there is a demand, we will then definitely run 2 units, and we prepare ourselves having that opportunity in the second half. That's why we make a turnaround for the Silicon III in Q1, so we are prepared for, if the market demand, to be able to run 2 units, maybe at a reduced rate, in the second half. And you see when we run 2 units, we can definitely lower the cost well below $10 a kg.

[Andreas Bertheussen, Equity Research Analyst]

Andreas Bertheussen, Kepler Cheuvreux. First my original question on the cash cost. So if you disregard the turnaround cost in the quarter, the higher MGS cost is it in 2019 run rate at this level, $12 per kg, if you have seen 15% utilization?

[James A. May, Chief Financial Officer]

Yes, it's close to that. When you look at MG costs, the increase between 2017 and 2018 is about $1 per kg. When you look at what happened in Q1, a very small part of it or I should say a smaller part of it is because we had carryover inventory, so the real effect change is between Q4 and Q1. Without those turnaround costs, you can basically take $3 million to $3.5 million and divide it by the production volume in Q2, and that is about $1.25, $1.50 per kilogram, and you can take that off. Under normal circumstances, yes, I think it's about $12.

[Andreas Bertheussen, Equity Research Analyst]

Okay. Secondly, on the ramp-up of silane gas in the JV, is this affecting the total market in any way, the framework agreement you're referring to? How should we look at the ramp-up of more silane gas from the JV into this fairly consolidated market?

[Tore Torvund, Chief Executive Officer and President]

Let's say, we do not have a lot of presence in the Chinese market. Our silane market is mainly Korea, Japan and Taiwan. And it's mainly semiconductor-grade semiconductor companies and not the PV market. So what -- let's say, the demand for semiconductor silicon gas in China is not there yet because there is very limited semiconductor companies operating in China so far. Definitely, that is ambition of China, to become an important semiconductor country. So let's say, we don't see that Yulin will eat into our market share out of Butte in a considerable way since Yulin will definitely focus on the Chinese market where Butte is South Korea, Japan and Taiwan. So we don't -- we see this more as an add-on than it is a competition to our Butte silane.

[Andreas Bertheussen, Equity Research Analyst]

Makes sense. And finally on the follow-up on the potential of running at more than 50%, not 100%, could you elaborate on this? Is this -- if the market allows 60%, 70% utilization, are you able to do this operationally throughout the year?

[Tore Torvund, Chief Executive Officer and President]

Let's say, definitely, the organization has learned a lot during this period. We thought that it was almost impossible to operate by reducing over 50% capacity. In fact, we learned that both in Yulin, we are running now one silane unit at [ 50% ] capacity. We did -- when we had 2 units running this quarter in Moses Lake, we ran about 63% without any issues. So we are much more flexible now. So we are not going to build inventory, but if the demand is, we are ready to supply what is the need for.

[Andreas Bertheussen, Equity Research Analyst]

So for -- and this could be part of a new strategy for the company to be more flexible on the output and also reflected in the cash cost?

[Tore Torvund, Chief Executive Officer and President]

Yes. If the demand is there, we will definitely do that. And we also try to moderate our customers saying that, okay, if you take more, we will share the cost advantage we do, so then we can reduce the price to your -- or to your customers because our cash cost will go down. So we split that 50-50, for example. Any more questions? Chris?

[Unknown Analyst]

Can you please share with us the semiconductor product mix capacity and sales between CZ and FZ products?

[Tore Torvund, Chief Executive Officer and President]

No, I would not like to do that. Let's say, there's no doubt that we try not to be the high end. Let's say, there's only 2 companies on a global basis, which are able to deliver what we call the Float Zone. That's where we have the best margin. So we try to utilize our reactors, most making FZ. And I'm hopeful that, down the road, that will be 100%. But there will always be fallouts, which will then be moved into the CZ market. But for us, it will be the very high-end part of the product, which is the FZ where we see the best margins.

[Unknown Analyst]

If there's an expected upturn in the market during Q2, would you continue to run both silane plants in parallel?

[Tore Torvund, Chief Executive Officer and President]

Now we are not able to do that because the silicon -- Silane III plant is now in turnaround and will not be available until beginning of July next year -- or this year. So we don't have the capacity in Q2. We will have -- be ready for that ability in Q3.

[Unknown Analyst]

Can you talk about the revenue expected from the Yulin JV and the timing of that?

[Tore Torvund, Chief Executive Officer and President]

Yes. Let's say I could, but I'm not allowed to. Let's say, when I'm now reporting for the Yulin JV, I need to have also the permission from my JV partner in China. What I, let's say, will do is just continue to report the major development this year, and then we will come back to more financial numbers hopefully by the end of the year. The reason why I want to do that is that -- to get some kind of accountability also into what is coming out from China. As you know, it has a lot of rumors what's going on and how much is produced. I think we have been very consistent in reporting for what's going on in China. We have said 8,000 metric ton is our target. We produced 800 metric ton in Q1. We are now starting to move this product into the marketplace. So in the next quarter, I will give -- share with you some more information about what is the price we get for our product and what is the quality. And gradually, you will get more information, but I can't give you a revenue target yet from China.

[Unknown Executive]

Okay, that completes our questions from the web. Thank you, Tore.

[Tore Torvund, Chief Executive Officer and President]

Okay. Anything else? Okay, thank you so much for coming.