Wacker Chemie AG

XETRA:WCH

Earnings Call Analysis

Wacker Chemie's Q2 Performance, Earnings, and Future Outlook

Wacker Chemie presented a strong performance in its Chemicals and Polysilicon segments in Q2 2024, with challenges persisting in certain markets like construction. The company's sales were €1.5 billion, and EBITDA reached €160 million despite being 37% lower year-over-year. Key achievements include the early completion of a new mRNA facility and increased demand for specialty silicones. Full-year EBITDA guidance stands in the €600-€800 million range, bolstered by improved market conditions in Chemicals. The company remains optimistic about future demand and plans to capitalize on growth opportunities in the U.S. solar market and sustainable products.

Introduction and Market Conditions

Wacker Chemie showcased a balanced performance in the second quarter of 2024, particularly in the Chemicals and Polysilicon segments, despite a challenging macroeconomic environment. While demand in some end markets like construction remained weak, there were promising signs of recovery in others. Group sales were approximately EUR 1.5 billion, with the combined EBITDA of the four operating segments increasing by 11% from the previous quarter. However, the Group EBITDA fell by 7% due to costs associated with the 'Other' segment.

Chemicals Segment Performance

The Chemicals segment experienced an impressive performance, with EBITDA reaching EUR 149 million, a 17% increase from the previous year and a 9% rise quarter-over-quarter. The segment saw a revival in demand for specialty silicones and managed to complete its planned turnaround ahead of schedule. Although the prices remained low and cost inflation was a concern, there was a noticeable improvement in certain specialty applications. The company anticipates raising prices for these specialties in the near future, enhancing profitability further.

Silicones and Polymers

The Silicones division reported sales of EUR 719 million, a 3% increase year-over-year, with an EBITDA of EUR 90 million. This performance was attributed to higher specialty volumes, an improved mix, lower raw material costs, and better plant loading. Improvements were also seen in Polymers, which noted seasonal growth despite weak construction-related demand in Western Europe and China. The consumer-related binders showed strong growth, particularly in packaging applications.

Biosolutions Segment

Biosolutions had a notable quarter, with sales increasing by 8% year-over-year, driven by growth in Biopharma. The opening of a new mRNA facility in June, completed ahead of schedule, marked a significant milestone. This new facility is expected to drive future growth and enhance the company’s capabilities in producing advanced therapies, providing a strong foundation for the segment's expansion.

Polysilicon Segment Challenges

The Polysilicon segment saw a 23% decrease in sales quarter-over-quarter primarily due to significantly lower solar grade volumes. Despite this, EBITDA improved to EUR 55 million from EUR 43 million in the previous quarter due to lower energy costs. The company has strategically moved away from the China market, focusing on the outside-China market for solar grade polysilicon, despite uncertainties related to anti-dumping investigations in the U.S. However, this shift is expected to benefit Wacker Chemie in the longer term with access to the premium U.S. market.

Financial Health and Outlook

Wacker Chemie's financial position remains strong, with EUR 1.1 billion in liquidity and EUR 4.6 billion in shareholder equity. Net working capital increased by EUR 278 million, reflecting higher inventory and accounts receivables in Chemicals and Polysilicon. The net income was EUR 35 million, translating to an earnings per share of EUR 0.68. Looking ahead, the company maintains its full-year guidance, with expectations of EBITDA in the upper half of the EUR 600-800 million range. The Chemicals segment is expected to see price increases in specialty applications, while the Polysilicon segment's stable performance in the semi business provides a reliable foundation.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, welcome to the Wacker Chemie Conference Call Q2 2024. I am George, the Chorus Call operator. [Operator Instructions]

At this time, it's my pleasure to hand over to Joerg Hoffmann, Head of Investor Relations. Please go ahead.

[Jörg Hoffmann, executive]

Thank you, operator. Welcome to the Wacker Chemie AG Conference Call on the 2024 Second Quarter Results. Dr. Christian Hartel, our CEO; and Dr. Tobias Ohler, our CFO, will take you through our prepared slides momentarily. The press release, our IR presentation and detailed financial tables are available on our web page under the caption, Investor Relations. Please note that management's comments during this call include forward-looking statements involving risks and uncertainties. We encourage you to review the safe harbor statement in today's press release, the presentation and our 2023 Annual Report regarding risk factors. All documents mentioned are available on our website. Chris?

[Christian Hartel, executive]

Welcome, everyone. Second quarter of 2024 saw a good result in Chemicals and Polysilicon and a successful nonstop benefit in Biosolutions. While overall market conditions remain challenging and some end markets such as construction stay weak, we see slowly improving conditions in a number of areas. It is still too early to speak about a broad-based macroeconomic recovery. The order intake still fluctuates and varies from region to region and application to application. On the last earnings call, we mentioned that order intake began to weaken at the start of April. This slowdown did not continue.

Activity picked up in our Chemical segment supporting a better-than-expected performance in silicones. Group sales came in at about EUR 1.5 billion. The combined EBITDA of the 4 operating segments was EUR 205 million, up 11% on the previous quarter. Group EBITDA, however, was 7% lower quarter-on-quarter due to the Other segments.

Sequentially, the Other segment incurred higher cost while the CO2 charge was comparable. As explained before, the CO2 charge will be reversed when we get reimbursed in the fourth quarter. Now Chemicals EBITDA came in at EUR 149 million, which is up 17% and 9% year-over-year and quarter-over-quarter, respectively. Demand for chemicals show signs of improvement, but low prices and overall cost inflation continue to define our results.

In silicones, we completed our planned turnaround ahead of schedule. The impact of this regular maintenance event did not hold us back to the extent that we indicated on the last earnings call. Demand for specialty silicones developed positively in the second quarter and we are now looking to raise prices for certain applications. By Polymers, we see seasonal quarter-on-quarter improvements. But demand for construction-related binders is weak in Western Europe and China, we see good demand in other regions. Consumer-related binders are performing well with strong growth in packaging applications and coatings.

In Biosolutions, we successfully opened a new mRNA facility in Halle at the beginning of June. Our colleagues did a great job and the site was completed ahead of time. I will provide some additional details on the next page. In the second quarter, Polysilicon reported a sequential improvement in earnings on much lower sales. Supported by lower energy costs, EBITDA came in at EUR 55 million, up from EUR 43 million in the previous quarter.

During the quarter, the plant in Tennessee was successfully ramped and is now fully operational. Polysilicon sales declined quarter-over-quarter as we eliminated our exposure to domestic China solar prices. The intense competition in the oversupplied Chinese polysilicon market result in unsatisfactory domestic pricing that hardly reaches local variable cash costs. The outside China market saw strong volumes and spot interest until the anti-dumping and countervailing duties, AD/CVD, petition targeting cell and module manufacturers in Southeast Asia were filed in the U.S. As a result, the market for solar grade polysilicon outside China is currently experiencing uncertainty. This may persist until there is clarity on the outcome of these investigations.

Looking forward and regardless of the outcome of the AD/CVD investigations, PV solar installations in the U.S. will continue to grow. The monocrystalline module for these new projects will need to be produced with UFLPA-compliant polysilicon. Supply chains will adjust to any potential outcome to ensure access to the U.S. market. These investigations further strengthen our view that the U.S. will protect its domestic solar market. We continue to discuss with existing and new customers about selling the volumes that are currently not contractually committed. We intend to have these volumes be the basis of long-term agreements with customers who want to access to the premium U.S. market.

Looking to sustainability. At Wacker, our efforts are targeted at lowering the footprint of our operations and enabling and improving the performance of sustainable products. We've committed ourselves to reaching net 0 by 2045 and have shown good progress towards reaching this target. SBTi validated our net 0 target in early '24, putting us among the first companies worldwide. There is a strong customer pull for sustainable products and solutions. In electromobility, there's a clear need to improve battery performance and safety. At this year's battery trade fairs, we presented new specialty silicon solutions. One product was specifically developed to enhance the safety of lithium-ion batteries. Essentially, our silicone rubber compound prevents fire from spreading in the event of a thermal runaway in a cell.

Silicones play an important role in enabling electromobility by improving the performance of batteries with this and other applications such as thermal interface materials. With the completion of our new mRNA facility in Halle on June 3, we have achieved a key milestone in Biosolutions. This new production line more than triples our capacity at the site, which is not part of the German pandemic-preparedness program. If needed, we can produce 80 million vaccine doses per annum for the German government.

In return for keeping these capacities available, we will receive a standby fee until 2029. The new site provides Biosolution with a strong foundation for further growth in Biopharma. As a contract development and manufacturing organization, we will produce advanced therapies, targeting multiple indications in areas such as oncology and personalized medicine for our customers. We see growing interest from customers who are attracted to our pDNA and mRNA capabilities and larger capacities. We've already started acquiring the first customer projects and we intend to gradually load the new site.

Before I hand over to Tobias, I will first address our full year guidance. As you saw in this morning's press release, we confirmed our full year guidance. We now expect EBITDA to be in the upper half of the EUR 600 million to EUR 800 million range. The range is defined by improving conditions in Chemicals and reflects current market conditions in Polysilicon. In Chemicals, we see room for price increases in certain applications as demand for specialty silicones improves, while other areas remain challenging. In Polymers, our global setup provides us with an exposure to growing markets offset the weakness in certain construction markets.

In Biosolutions, we are focused on filling our new capacities. In Polysilicon, our semi business provides a stable foundation. We continue to invest in our future and act on unique opportunities. We just closed a small acquisition to increase our silicone wound care capabilities in the U.S. Silicones offer best-in-class solutions for certain applications due to its unmatched skin compatibility and tunable adhesive properties. We will continue to look for add-ons to further strengthen our portfolio.

Now to Tobias for further details on our results.

[Tobias Ohler, executive]

Thank you, Chris. Welcome, everybody. Looking at the profit and loss. Sales during the second quarter of 2024 came in at EUR 1.5 billion, down 16% year-over-year. The year-over-year development in sales was driven by several puts and takes in each of our segments. In Chemicals, lower average selling prices were offset by higher volumes. On the other hand, the average higher selling prices in Polysilicon came with lower volumes sold for solar grade applications. Although we benefited from higher specialties demand and lower energy prices, the effects of the lower solar volumes in Polysilicon and lower prices in Chemicals left mark throughout our figures.

Second quarter group EBITDA was EUR 160 million, 37% lower year-over-year. As with the development of sales, several factors are at play here. The EBITDA contribution from Polysilicon contracted by EUR 100 million to EUR 55 million. On the other hand, the Chemicals EBITDA expanded by EUR 21 million to EUR 149 million. This was due to the improved demand, both year-over-year and sequentially. The Others segment was minus EUR 45 million in the second quarter. This primarily reflects the charges related to the embedded cost of CO2 in our energy builds. Once we receive the CO2 refund in the fourth quarter, the cumulative charges over the first 3 quarters of this year will be reversed. For the full year, there is no change in our expectations here. We expect the Others EBITDA excluding the investment income will be at approximately minus EUR 20 million.

Now looking at the last line items in P&L. Including the contribution from Siltronic, the results from investments was EUR 5 million. Net income was EUR 35 million. This equates to earnings per share of EUR 0.68. Our balance sheet shows strong financials with EUR 1.1 billion in liquidity and EUR 4.6 billion in shareholder equity. Net working capital increased by about EUR 278 million compared to the end of last year, and this primarily reflects the safe development in Chemicals with respect to the accounts receivables and higher inventory in Polysilicon.

At Silicones, sales in the second quarter were EUR 719 million, up 3% year-over-year and slightly ahead of the preceding quarter. At EUR 90 million, the second quarter EBITDA was well above last year's result. This was primarily due to the higher specialty volumes, a good mix, lower raw material costs and better plant loading. During the second quarter, we completed a turnaround and limited the availability of standards. We have updated our Silicones outlook for 2024. We now expect a low double-digit percentage EBITDA margin up from high single digit before. Overall, specialty volumes are at a good level, but margins remain well below target. This is now primarily a function of price and raw material costs.

As Chris mentioned, we do not see yet a broad-based recovery, but there is a good demand for certain specialty applications. For these applications, we intend to benefit from the stronger market conditions. Sales in Polymers, we are EUR 389 million, 7% below last year, mainly driven by lower prices, led by raw materials. Average selling prices were comparable to the previous quarter, and higher volumes underpinned the 5% sequential sales growth. We see good demand for consumer-related binders with volumes being clearly up both year-over-year and quarter-over-quarter. Construction-related polymers are comparable year-over-year and showed some sequential improvements due to higher building activity in the summer.

Higher asset utilization rates supported second quarter's EBITDA, which came in at EUR 59 million, up 5% from the previous quarter. For 2024, our full year outlook is unchanged. As with Silicones, we see different demand patterns developing across the regions and applications in Polymers. For construction polymers, we see good demand in Southeast Asia, Americas and Middle East, while Western Europe and China faced headwinds. Consumer-related applications see good growth in adhesives for paper packaging, driven in part by the plastic to paper trend.

At Biosolutions, sales during the second quarter were EUR 98 million, up 8% year-over-year and 37% higher quarter-over-quarter. Sales were primarily supported by growth in Biopharma. We opened the new mRNA facility at the beginning of June, and we booked one month of the annual reservation payment in the second quarter. The payment, therefore, only had a limited impact on the second quarter EBITDA, which came in at EUR 1 million. Our full year outlook for Biosolutions is unchanged. Sales growth will be driven by both Biopharma and BioIngredients, we expect a significantly better result in the second half of 2024.

Polysilicon reported EUR 232 million during the second quarter, 23% lower quarter-over-quarter. The primary driver was the significantly lower solar grade volumes. Sequentially, EBITDA increased to EUR 55 million, up from EUR 43 million on lower energy costs. We have updated our full year outlook for Polysilicon. We now expect sales in the range of EUR 1.1 billion to EUR 1.4 billion with an EBITDA in the range of EUR 200 million to EUR 300 million. During the first half of 2024, we generated nearly EUR 100 million in EBITDA. We are now halfway to the lower end of our full year guidance range.

Charleston has successfully ramped and we expect an improved operational performance in the second half of the year. Stable average selling prices and higher volumes sold in the second half of this year will define the higher end of the range. There are some uncertainty in the industry currently, but the guidance range addresses the most likely scenarios in our views.

Now let's look at our net financial position. The first half of 2024, we generated a gross cash flow from -- of EUR 4 million. Gross cash flow was held back by investments in working capital following the development of Chemical sales and inventory polysilicon during the second quarter. Cash flow from investing activities was EUR 310 million compared to the reported CapEx figure of EUR 294 million during the first half of 2024. The difference between the 2 figures is due to the timing of the investment cash payout. After the dividend payment of EUR 149 million during the second quarter, we ended the first half with a net debt of EUR 661 million.

Before we start with the Q&A, let me summarize. Wacker is well positioned financially and strategically. We have made good progress towards reaching our full year targets. We continue to have a high focus on cost and strengthening our specialty businesses.

[Jörg Hoffmann, executive]

Operator, we're now ready to begin the Q&A.

[Operator]

[Operator Instructions]

Our first question comes from Rikin Patel with BNB.

[Rikin Patel, analyst]

Firstly, I just wanted to dig a bit deeper on outlook. It'd be great if you could give us a bit of color on each segment into Q3. I suppose on Silicones, in particular, you pointed towards pricing increases. So does that mean that we can assume EBITDA will be up sequentially. And then secondly, maybe just on cash flows, so I suppose in the first half, you've invested in working capital and I appreciate the dynamics are a little bit different in Chemicals and Polysilicon. But maybe if you could just give us a bit of color on how you expect working capital to develop be well within the second half?

[Tobias Ohler, executive]

Tobias speaking here. Thanks for your question, on the trading update, I assume you are not only interested in Silicones. But starting with Silicones that you're stuck, you were trying to see the movement from Q2 into Q3 and as we have it also in our PowerPoint notes, there is an unorder -- uneven order pattern that is still sort of defining the picture. We have seen a very strong Q2 for specialties. And order entry is now again pulling down somewhat compared to the last few months. And it looks a bit like restocking being over. But don't forget that August, at least in Europe, usually runs slower. And I think what we see is quite in parallel to what many other industries see. They're not as optimistic as they had been at the beginning of Q2. But if I look at input cost, if I look at prices, I think everything should be sort of comparable Q3 against Q2.

So if you summarize, EBITDA also will likely be comparable quarter-over-quarter. But it will be clearly up year-over-year. I think it really depends on how orders shape up over the summer, over the coming weeks and months. For Polymers, we also see stable demand into Q3. Europe is stable year-over-year. U.S. a bit better construction and China still under pressure. So we also expect Q3 to have a continuation of the first half with a moderate development in the construction-related businesses and a good demand in the consumer-related businesses. Sales prices broadly stable, but also raw material stable. So no change from that perspective.

Biosolutions, we have the standby payment that will support Q3 results. And then I think we should look at the second half being stronger EBITDA wise than the first half if you put all together. And for Polysilicon, the third quarter is, clearly, semi is very resilient, both in price and volumes. And as you know, we have successfully moved away from the China selling price. So we expect the outside China volumes also to be comparable at similar prices. So if you put all together, also Q3 should continue similar to the Q2 level. And yes, I think the second question, Rikin, was both on cash flow, you had spotted that, yes, we had quite a working capital built in the first half that should not repeat in the second half to make it [short.] Typically, we have some seasonality. And for that reason, cash flow in the second half should be better than in the first.

[Operator]

Our next question comes from Andreas Heine from Stifel.

[Andreas Heine, analyst]

Two questions, if I may. First is, again, on Polysilicon. So this is situation you face now in Southeast Asia. What is your production plan in Q3? Currently, I understand that your plans fully available and running at high utilization rate, do you continue to do that? Or do you change this given the uncertainty? That's the first question. And the second one, could you go in a little bit more detail in Biosolutions. There are various different businesses and looking into the Q2 outcome, it seems that not everything is doing very well. When can we expect that this business is getting back to normal which I would say is a 15% EBITDA margin?

[Christian Hartel, executive]

Yes. Andreas. This is Christian. Thank you for your questions. I will start with the first one on the Polysilicon business. And as you said, I mean, currently, there is a window of opportunity which opened because of these anti-dumping and countervailing duty discussions. Preliminary findings, to our knowledge should be filed in September, at least for the countervailing duties. But the key message is that, that window of uncertainty will also close some time.

It is now in the market. What does it -- how does it affect us? That was your question. Our expectations, we will plan for production in Q3 at a similar level to Q2. And second part of your question was on Biosolutions. Yes, as we mentioned in the past, obviously, we had some upfront payments and integration cost to cover. And I think a big milestone has been achieved now on the 3rd of June, and we are all very proud about this with the pandemic-preparedness plans being faster on time than expected, going full green light from the government and also with the payments now coming in from the beginning of June, that will definitely give some tailwind on the results for the second half.

And we saw also strong sales and growth in the BioPharma business. BioIngredients, which is also with new site in Leon, the custom manufacturing business, still facing integration costs. And also, we do have some legacy products in the Life Science segment that see decline. So as Tobias mentioned, much better second half of this year for Biosolutions and then gradually improving from there.

[Andreas Heine, analyst]

Is it improvement in the second half only in the Halle plant or the other parts of the business also improving in the second half?

[Christian Hartel, executive]

No, we also see improvement in the other plants. Yes.

[Operator]

Our next question comes from the line of Chetan Udeshi JPMorgan.

[Chetan Udeshi, analyst]

Just looking at your cash flow statement, I noticed in first 6 months, and this is mainly in second quarter I think, you are showing a change in contract liabilities of minus 20, which I remember from the past used to have these advanced payments from customers in Polysilicon, which you used to recognize as income from time to time, especially when customers don't honor the volume commitments.

So just curious if Polysilicon numbers today are partly supported by these advanced payments coming through the P&L because some of these customers might not be taking their contractual volumes. And if that's the case, how long will that continue? Is it in the numbers even in Q3?

The second question was, at what point do you stop building inventory in Polysilicon? Is there a threshold beyond which if you can't agree to new volume contracts with existing or new customers on ex China price? At what point, do you have like a threshold, okay, you need to get that by end of the year, otherwise, you will stop producing at full run rate? Or you're not at the moment, contemplating any time frame for that? And last question on silicones is, you mentioned the order books are still volatile. Is there any particular end markets where you see, let's say, more or stronger demand versus weaker demand within Silicones, anything noticeable by end markets?

[Tobias Ohler, executive]

Tobian here, I'll start with the first and then hand over to Chris for the second and then I'll take the third again. I mean, there is no specials in the second quarter in Polysilicon. So that has nothing to do what you spotted in the cash flow. So yes, I think that's it.

[Christian Hartel, executive]

Yes. And Chetan, let me answer the second question. Well, on Polysilicon, well, first of all, I think what we need to be clear about as Tobias also pointed out, semi business, which is a clear strategy of ours growing very consistently, both in volumes and profitability.

That being said, there is no uncertainty because of the CVD/AD investigations from the U.S. side, but we also see continued growth of the PV systems in the U.S., and these projects require materials, which is compliant in U.S. regulation. And therefore, we are absolutely confident that there will be demand for material that we can produce, which is U.S. compliant Polysilicon to continue the growth. At this moment, it is definitely too early to talk about reduction in our production. We continue to produce because we believe this window of uncertainty will close, and we will be able to sell more of this volume which is in high demand in the U.S. market.

[Tobias Ohler, executive]

Chetan, to the third question on Silicones, looking at the segment, we see in the second quarter, stronger demand in some industrial applications and coatings in other consumer applications like textile. But if you are asking also for the weak spots, definitely the automotive industry, there we had seen a decline in demand. So it's a bit patchy picture as we described it.

[Operator]

Our next question comes from Matthew Yates in Bank of America.

[Matthew Yates, analyst]

Follow-up really on the last that you made there. I wanted to ask about how the practicality of pricing works in specialty silicones. I noticed some headlines from some of your peers announcing price rises. But given you make, if I'm not mistaken, literally thousands of products in that business, do you do and across the board price increase? Or given what you're saying about the patchiness, do you have to go product by product? And how easy is that to do in reality?

[Christian Hartel, executive]

Okay, Matthew, this is Chris. Thank you for the question which is a good question. So -- this year, we have seen good demand for specialties. And that's also the reason why we say we are looking to raise prices in certain applications. We've seen comments from competitors for increasing prices. Obviously, we appreciate these comments. Because it is a little bit patchy, as Tobias pointed out, and also if you look at our order book, and also what we stated in our press release, it is not yet a broad-based recovery of demand, which, of course, would make it more easy or more straightforward to increase prices on a broad-based level. And therefore, it is more like what you also mentioned, you need to be specific, at least specific by segment and also specific by region because of the different competitive landscape. So it is a tedious process. But nevertheless, we've shown in recent years that we are able to do this and the teams are working really with high priority on selectively increasing prices where it's possible.

[Matthew Yates, analyst]

Okay. And can you talk a little bit about the supply side of the more commodity grade products? Are we through with the capacity additions in the industry? Are we seeing any rationalization? Or are you still having to contend with badly oversupplied market there with no much traction of tightness?

[Christian Hartel, executive]

Well, I mean, first of all, the standard side is really not our core. We look at specialties, we see good picking up demand there. There are some announcements on Chinese capacities, as you can imagine, for all Chemical products in the world. And I guess, at the same time, we will see some sort of consolidation, will there be enough to be -- to have an even supply-demand side? But again, it's not so much of a concern to us because the core of our business and the strategy goes into the specialty segment.

[Operator]

Our last question comes from Sean McLoughlin from HSBC.

[Sean McLoughlin, analyst]

On -- you said various scenarios are baked into the Polysilicon guidance. Could you maybe just elaborate a little bit more on what scenarios these might be? And what is your base case assumption at this point?

Second question is on Biosolutions. I mean, I understand that you've got improvement coming in the second half, but you're still way below, I suppose, what you're targeting. I mean, to what extent do you intend to actually slow CapEx and maybe hold back on M&A until you're able to demonstrate stably higher profitability? Or is that not the way we should be thinking about this business?

[Tobias Ohler, executive]

Sean, Tobias here. On your first question on Polysilicon and our expectations for the remainder of the year, as you have seen, we had changed the guidance to now EUR 200 million to EUR 300 million EBITDA. First half of the year, we are at -- yes, at 100. And our basic assumption is that Q3 would be similar to Q2. And then the final quarter would define where we end in the range. And that's how we look at it, but the uncertainty Chris talked about, we don't see a big change in the third quarter. But as those uncertainties go away, we could grow with additional volumes and that could bring us to the upper end of the range.

[Christian Hartel, executive]

Okay. And Sean, on the second question, Biosolutions, yes, we are currently not where we want to be. And therefore, we exactly go the way that you pointed out. We will definitely hold back on further investments and M&A, especially regarding new sites or new acquisitions with the Halle inauguration and also with the acquisition of Leon, we achieved 2 major milestones in our growth plan and now the strategy is really all about filling the capacities and improving profitability. That being said, of course, you do need to invest in current business for maintenance of the business and some selective investments in the sites to improve profitability there and have a new growth, but very clear focus now on acquiring new business and improving profitability.

[Sean McLoughlin, analyst]

If I could just follow up on the prior question. So I mean, do you have a base case timing on when you expect to complete renegotiation of projects at this end Q3?

[Christian Hartel, executive]

Which projects do you mean now?

[Sean McLoughlin, analyst]

Sorry, the non-China poly volumes?

[Christian Hartel, executive]

So I mean -- well, I mean, maybe we didn't point it out clearly enough. We said in the last 18 months, our clear target is to achieve changing all contracts from the inside China or getting away from the inside China pricing, we did achieve that. And that's a big success story for us. We have no contracts at the moment, which is linked to the inside China price.

So we are definitely not selling to the inside China price anymore. As we have some uncertainty now in the market, the volumes we sold in Q2 were not as high as they could have been. But I think, as I said before, this window of uncertainty will close again because there is demand for compliant polysilicon to the U.S. market and then volumes also will go up again.

[Operator]

Our next question comes from Konstantin Wiechert from Baader-Helvea.

[Konstantin Wiechert, analyst]

Also, maybe again on the Polysilicon part where you said also that you're no longer selling under the Chinese prices. But I guess you've also started negotiations with your customers and I was just wondering whether you could give a bit more color on really what the feedback from your customers were. You touched, I mean, on the uncertainty from the AD and CVD currently, but maybe you could also shed some light on how your discussion with customers were about the capacity additions in the Middle East?

I think you said already in the last call that you think '25 or end of '25 is maybe a bit optimistic, is that also the view of your customers or are they a bit more maybe optimistic on that time line? And could that be a reason for them also to be a bit more cautious in negotiations with you?

[Christian Hartel, executive]

Well, Konstantin, I would really say at the moment, it is majority really about this antidumping and countervailing duty story. Obviously, there is some interest in new plants coming up, which have to prove that they can produce the right material in the right volume. But that's really not the essence of the talks that we have in the moment. And regardless of that, I would say, if you look at the U.S. solar market, there is a lot of growth expected and I really believe in that growth. And if you talk about maybe next year already 55, 60 gigawatts, there's a lot of compliant polysilicon, which you need in a very tight market. So therefore, I'm not that concerned about any additions of capacity, which have to prove to be the right material.

[Konstantin Wiechert, analyst]

And maybe one follow-up. I think speaking of the tight market, which is tight with obviously without your capacities and maybe becoming also tight with your capacities depending on whether the Middle East come on time early or later. However, do you really see that the customers are also here, then willing to take the full volume or maybe wait just a bit and take then maybe more growth in '25 or '26 onwards when the market is not tight anymore and maybe then the prices are lower?

[Christian Hartel, executive]

Well, Konstantin, I mean, it's actually a lot of speculation. And obviously, not all the customers have the same thinking. Again, my message would be, there is no uncertainty and everybody is kind of little wait and see and that window of uncertainty will definitely close and from that, there will be more volumes to be sold.

[Operator]

Our next question comes from Sebastian Satz from Citi.

[Sebastian Satz, analyst]

I've got a couple of follow-ups on Polysilicon as well. So just talking about this window of uncertainty. What do you think needs to happen for your customers to have sufficient confidence again to enter into new contracts? And then the second question would be thinking of different scenarios, what do you think is the risk that you need to potentially write down some of the inventories that you're producing at the moment if indeed customers are not willing to enter new contracts? So if you could help us understand the technicalities around that, that would be great.

And then lastly, again, thinking of supply for non-Chinese international polysilicon and the Middle East has just been mentioned. Just wondering if you could comment on the cost of producing polysilicon in the Middle East. I'm not sure if you had looked into it yourself, but maybe if you could just tell us what do you think what the cost is likely going to be? Just trying to better understand what the marginal cost of production for international polysilicon is going to be?

[Christian Hartel, executive]

Okay, Sebastian. I will start with the first question. The main topic is uncertainty. Uncertainty means you don't know what comes. And I think what our customers would need is at least assigned with a preliminary ruling on countervailing duties and antidumping duties because then you can factor it in. And of course, it's obviously different if it's 10% or if it's 100% or it's more. And therefore, that's really what customers need, first and foremost, a clear ruling what they can expect and they can adjust their production planning on that.

[Tobias Ohler, executive]

On the second question, Sebastian, Tobias here. As you know, we booked inventories at the lower of the cost or the market price. And from today's perspective, we don't see that as a likely scenario that we have to write down on the inventory.

[Christian Hartel, executive]

And Chris, again, on your question on your third question, on the cost position of the guys in the Middle East. Well, obviously, you should ask these people first who are building because they have obviously a much better insight than we have. I can tell you that we scouted the areas some time ago before building the Tennessee plans. And it's always at least what we did, it is just a mixture of what's our factor cost regarding personnel, but it's also availability and capability of people. It's raw material supply. It is electricity, of course. And at that time, our decision was to go to Tennessee and not to the Middle East. I'm not saying that maybe something's changed in recent years. But I mean, we are not in the details of these new plants and the framework of the conditions. So very happy touch for us.

[Operator]

Our next question comes from Sebastian Bray in Berenberg.

[Sebastian Bray, analyst]

The first one is in principle question on half 1 versus half 2. If I think about the balance and the implied step up at the midpoint of guidance, I can think of 3 or 4 factors that would mean that H2 would have some benefits. You got the reservation fee from the Biosolutions business, you potentially get a tax credit from Inflation Reduction Act. I'm not quite sure if that's baked into guidance or not from memory. It wasn't for U.S. production of polysilicon.

And if you -- if things develop according to plan, to potentially get to mark up the polysilicon that's now gone into inventory at the point of sale at higher price, is there anything else other than those 3 that in principle would mean that H2 would be higher than H1? I forgot the reversal of the provision in the other line. But I just want to check if that list is reasonably exhaustive?

[Tobias Ohler, executive]

Tobias here. Actually, I'm not entirely sure whether I have followed all of your items, but I see your point on the reservation fee ticked off. I think that's part of our Biosolutions guidance. On the Polysilicon side, we had discussed about the range, EUR 200 to EUR 300 million in EBITDA, depending on how the market got. That is not including the tax credit, as we said, we are not putting that into the guidance. I think one large step-up was on the silicon side in comparison to our Q1 guidance, but also that assumes that we have some seasonality in the fourth quarter, and that's why second half, not as strong if you do the math as first half.

We need to see whether there's momentum, we are happy to take it, but we usually experience some Q4 inventory management from customers depending on the market situation and one point I think you missed and didn't mention is the CO2 compensation scheme that we can only account in the fourth quarter, and that will make the second half stronger than the first half. If you put all together, I mean, we feel comfortable in, yes, moving up our view on the range, as we said, to the upper half, but there is uncertainty. And yes, it's better than we expected at the beginning of the year.

[Sebastian Bray, analyst]

That's helpful. Just the second one I think has been touched on, but I want to clarify. For the most recent weeks of trading, where there is visibility, there have been any changes to the order books in the Silicone segment?

[Tobias Ohler, executive]

Yes, a bit slower order intake, but there is a decent book for summer and, as I said before, it depends on the summer, how it develops. But I mean, second quarter was stronger than expected. So I think we have to be flexible, and we have to cope with some uneven demand patterns.

[Sebastian Bray, analyst]

That's helpful. My final one is on Biosolutions. The segment that has just been finished -- the facility that has just been finished in Halle, I believe, making RNA, I remember last year when Lonza ended its contract with Moderna, it shocked the RNA facility that it was using presumably because it couldn't readily reallocate the capacity. Can I ask 2 things?

The first is, leaving aside the reservation fee, is the capacity that Wacker has available actually filled this stage? Or is it still waiting to be contracted? And the second question is, is this a dual-use facility, in the sense that it can switch between RNA and other production, be it a bacteria produced biologics or that type of thing? Or it's purely an RNA production facility?

[Christian Hartel, executive]

Okay. Sebastian, a good question on the Halle facility. Now as you mentioned in your comment on mRNA, I mean, the big business in the last year was obviously huge volumes for COVID vaccination. And this will not be replaced by one day to the other. I think this is common knowledge also in the industry. But don't forget, there are more than 1,000 clinical studies working on mRNA products. Only a small part of actually vaccination, most of them are therapies like in oncology. So therefore, we do see a lot of development going on in this part of new medicine and I think what you need for that is rather kind of flexible capacities and not kind of the super, super huge capacities which you would need for COVID vaccination.

I'm not in the detail with the side of Moderna, so I cannot comment on this. But what I can tell you is that our site can be used both for medium, larger scale, but also for smaller medium-scale production. And as you pointed out, it is not purely for mRNA, we're actually also working on some plasmid DNA projects at the moment. So there is multiple use for this capacity, which also helps to fill the capacities.

[Operator]

Our last question comes from Jaideep Pandya from On Field Research.

[Jaideep Pandya, analyst]

I have a few questions, please. Firstly, I want to clarify. So if we talk about Polysilicon for Q2 versus sort of Q1, when you put this material inventory, what have you used as a cost base to account for it? Because I think we understood earlier it was at cost. But I think, Tobias, you also just mentioned it's low risk of inventory write-down, which means it is accounted as China product. So which one of the 2 is it?

[Tobias Ohler, executive]

I mean, we account for the lower of the 2, costs and selling price, but it's our selling price. It has nothing to do with the China domestic price.

[Jaideep Pandya, analyst]

Okay. But is your -- I presume that given the provision you took end of [indiscernible] because the prices were too low. I presume even your selling price is lower than your cost price? Or is it higher than the cost price?

[Tobias Ohler, executive]

No, no, not at all. That was specific to some of the contracts that we had.

[Jaideep Pandya, analyst]

Okay. So your selling price that you're accounting for is higher than your cost price. That's how we should understand? Just to be very clear.

[Tobias Ohler, executive]

Clearly, we are profitable with the solar business as we strive for the outside China market, as Chris mentioned. Yes.

[Christian Hartel, executive]

And we are not selling to the China price anymore.

[Jaideep Pandya, analyst]

Okay. All right. That's very clear. The second point is, I appreciate the uncertainty for the new customers, but I presume lot of the volume for outside China is also going to the U.S. at international prices. So have you seen any weakness in volumes for those customers? Because I presume, they would also face that uncertainty. So can you define how is the demand or mentality of your current customers versus some of the conversations you're having with your new customers? That's my second question.

And then the third question is, I think you participated in Intersolar after a very, very long time. So I want to understand how was the response from that? And is this international price only going to be relevant for the U.S.? Or is there appetite also building in Europe for, let's say, non-Chinese material for the through and through value chain?

And then my last question for this is on silicones. I understand the seasonality point and the patchy outlook. But from -- if I compare what you published today versus what you gave as outlook at Q1. Clearly, things have improved meaningfully. And your competitors are saying the same thing. So given there is no turnaround in Q3, why would EBITDA [indiscernible] Q-on-Q?

[Christian Hartel, executive]

Maybe one thing to jump in here. I mean, I think we didn't say patchy outlook, we said patchy order intake.

[Jaideep Pandya, analyst]

Sorry, patchy order intake.

[Christian Hartel, executive]

I would call it the outlook, I'm rather positive on the outlook, but the order pattern is not just every month it's the same. I think that was the remark regarding the patchiness of the business.

[Tobias Ohler, executive]

And Jaideep, if I add, Tobias here, to the silicones question. We do have a shutdown also in the second half at the other large site. So there is a bit of a drag on volumes again. And then, we are -- yes, normally facing a slower demand in the fourth quarter, but still fourth quarter would be up against prior year. And I think that confirms the overall positive sentiment that we see in the Silicones business.

[Christian Hartel, executive]

Okay. And Jaideep, if we look at your second question that was on the polysilicon and the uncertainty from us for current customers and other market players. Well, my simple answer would be, I mean, everybody in the market is currently affected by the uncertainty. Actually, we don't see a big difference between existing customers and new customers. And therefore, I hope that this uncertainty will be closed soon. It will definitely be closed. Now the next timing should be September for the CVD preliminary findings on that.

And second question was the international price thing only relevant for the U.S. and also in Europe, well, at the moment, it is mostly on the U.S. side. Again, there are some political discussions in Europe going on, should we do something similar. But as always, with European politics, it takes time and more efforts to achieve something. So not much to report on that.

[Jaideep Pandya, analyst]

Great. If I may just ask one follow-up and ask Chetan's question in a slightly different way. Is there like expiry date or some kind of a quality issue time frame when you produce polysilicon and store it? Or can you use and store the material for more than a year and then on the volume of how much you're storing if you don't want to disclose the price. Historically, at the beginning of the year, you told us a 1/3 is semi, 1/3 is international and 1/3 is China linked to the China price. Now that you've stopped selling China linked to China price, should we think then that mechanically speaking, in the second half, that's the level of volume that you would inventory if you don't find a new customer?

[Christian Hartel, executive]

Let me start with the durability or how long you can store polysilicon, you can actually store it indefinitely, so it doesn't get worse also in the way it's packaged by us. So that shouldn't be of any concern. And we have done this before.

[Tobias Ohler, executive]

And with respect to the details on the inventory build, I think let's not engage in the speculations. The case will be resolved and then the uncertainty is away. And yes, that's it.

[Operator]

Ladies and gentlemen, there are no further questions. Back over to the management for any closing remarks.

[Christian Hartel, executive]

Thank you, operator. Thank you all for joining us today and for your interest in Wacker Chemie. Our next conference call on the Q3 results is scheduled for October 29. In the interim, we will hold our 2024 Capital Market Day on September 18 and 19 at our main site in Burghausen, Germany. As always, don't hesitate to contact the IR department if you have further questions. Thank you.

[Operator]

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.