Polysilicon Q1 Volume and Price Both Plummet; Goldman Sachs Reiterates Buy on GCL, Sells Tongwei and Daqing A

Overview

This Goldman Sachs report focuses on China's solar polysilicon sector. Key findings include: Q1 2026 saw both volume and price declines across the industry, accompanied by significant inventory impairments, as severe overcapacity continues to weigh on pricing. In light of intensifying price competition since March, Goldman Sachs has cut its 2026 average polysilicon price forecast by 5% to RMB 40/kg and reduced 12-month target prices for covered stocks by approximately 6%. Amid broader industry pressure, the firm notes increasing strategic and fundamental divergence among companies: reaffirming a buy rating on GCL Technology, citing its granular silicon cost advantage and downstream penetration potential; maintaining sell ratings on Tongwei and Daqing A, arguing that the market overvalues their volume and pricing outlook.

Core views

Industry Status and Price Outlook: In Q1, shipments from the three leading polysilicon firms—GCL, Daqing, and Tongwei—averaged roughly 50% below consensus estimates, with Daqing A and Tongwei reporting inventory impairment losses of RMB 685 million and RMB 861 million, respectively. Looking ahead, despite a potential demand inflection point in H2 2026, severe overcapacity at Tier 1 and Top 6 production levels remains pronounced. Goldman Sachs has revised down its 2026 average polysilicon price forecast by 5% to RMB 40/kg, forecasting stable pricing around RMB 36/kg in Q2, potentially dipping to RMB 35/kg in Q3 due to seasonal electricity cost reductions, before rebounding to RMB 40/kg in Q4 2026. The long-term average price forecast for 2027–2030 remains unchanged at RMB 40/kg. Corporate Strategy Divergence: Tongwei is focusing on short-term supply-side adjustments to raise prices, aiming to increase high-quality polysilicon capacity in the long term; GCL prioritizes cash flow in the near term while expanding into lithium-ion battery cathode materials (with 200,000 tons of capacity expected to come online in Q2 2026, already securing orders from CATL and others); Daqing leans on policy-driven price boosts in the short term, while eyeing UTR improvements over the longer run. Individual Stock Investment Logic: Goldman Sachs maintains a buy rating on GCL Technology, noting its FBR granular silicon technology sits at the lowest end of the cost curve, with inventory levels kept to just 3–7 days (compared to industry averages exceeding six months). Accelerated downstream adoption of granular silicon could significantly enhance shipments and profitability. For Tongwei, the firm keeps a sell rating, citing heavy exposure to oversupplied polysilicon markets, inflated shipment growth expectations, and mounting inventory and balance sheet pressures. Daqing A also receives a sell rating, as aggressive capacity expansion combined with weak demand pushes it toward higher cost tiers, leaving limited scope for cost reduction compared to peers, and reflecting overly optimistic market views on volume and pricing. Daqing ADR retains a neutral rating, as current depressed valuations already factor in prolonged low polysilicon prices and modest UTR improvement prospects.

Analysis framework

Goldman Sachs structured this report along two main axes: 'Supply-Demand Fundamentals Analysis + Individual Stock Differentiated Valuation.' First, by comparing Q1 shipment volumes, production output, cash costs, and selling prices across the three companies, the firm quantified underperformance and calculated unit cash gross margins and operating profits. Second, leveraging third-party industry data from SMM, Oilchem, and others, the analysis examined supply-demand balances at Top 6 and Tier 1 capacity levels, concluding that even with a potential demand recovery in H2 2026, severe overcapacity would persist, driving sustained downward pressure on prices. Using a 'mark-to-market' approach based on spot pricing, the firm further adjusted forward price forecasts. Finally, under unified industry assumptions, Goldman Sachs applied tailored valuation methods—P/B or EV/EBITDA—based on each company's unique business positioning, cost curve, and financial health, setting 12-month target prices accordingly and establishing differentiated investment recommendations ('buy GCL, sell Tongwei/Daqing A').

Methodology notes

• Industry/ Sector Analysis FrameworkSupply-demand framework

  Supply-Demand Framework and Overcapacity Analysis

  A core methodology for assessing cyclical manufacturing sectors. In this report, Goldman Sachs evaluated supply volumes at Top 6 and Tier 1 capacity levels against downstream component demand, determining that even if demand recovers in H2 2026, severe overcapacity will remain, thus predicting prolonged price suppression.

• Industry/ Sector Analysis FrameworkCost curve analysis

  Cost Curve Position Determines Profit Resilience

  During downturns, a company's relative position on the industry cost curve dictates its profitability and survival prospects. Goldman Sachs highlighted how GCL, benefiting from granular silicon technology, occupies the lowest cost tier, whereas Daqing, burdened by expansion and weak demand, finds itself pushed toward higher-cost segments, explaining the underlying reasons for differing fundamentals and ratings.

• Valuation MethodPB valuation

  Price-to-Book Ratio Valuation

  This method measures valuation by dividing stock price by book value per share. It is commonly used for companies experiencing downturns or negative earnings. In this report, GCL Technology received a 1x 2027E P/B valuation, while Daqing A was assigned a 0.3x 2027E P/B (minus one standard deviation) discount, reflecting different asset quality premiums/discounts.

• Valuation MethodEV/EBITDA valuation

  Enterprise Value-to-EBITDA Valuation

  This metric assesses a company's overall value relative to earnings before interest, taxes, depreciation, and amortization, often employed in capital-intensive industries. Tongwei Co., Ltd. was valued using an 8x 2027E EV/EBITDA multiple, discounted back to 2026 to calculate its 12-month target price.

• Company Fundamentals and Financial FrameworkProfit Quality Analysis

  Inventory Impairment and Inventory Turnover

  When product prices plummet, companies must recognize inventory write-downs, directly impacting current-period profits. By analyzing inventory impairment losses incurred by Daqing A and Tongwei in Q1, coupled with their respective inventory clearance speeds (e.g., GCL at 3–7 days versus industry averages of six months), Goldman Sachs assessed each company's profitability and operational efficiency.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• GCL Technology (3800.HK)

  Beneficiary: The report highlights GCL's granular silicon cost advantages and accelerating downstream penetration potential, reaffirming a buy rating.

  Strengths

  Occupies the lowest cost tier in the industry; extremely low inventory levels (3–7 days vs. industry averages exceeding six months); expanding into lithium-ion battery cathode materials (already secured orders from CATL and others).

  Comparison

  Compared to Tongwei and Daqing, which face risks of overvalued volume and pricing expectations, GCL is undervalued by the market regarding its long-term shipment growth and cost-reduction potential.

  Risks

  If photovoltaic demand falls short of expectations or capacity exits too slowly, price pressures may intensify; adverse changes in raw material or electricity prices could drive up costs.

• Tongwei Co., Ltd. (600438.SS)

  Affected: The report argues that the market overestimates Tongwei's shipment growth, while inventory and balance sheet pressures warrant a sell rating.

  Strengths

  Operates an integrated business model spanning upstream polysilicon to downstream batteries and modules.

  Weaknesses

  Highly exposed to oversupplied polysilicon markets; ROE may remain below cycle averages; significant inventory pressures and relatively weaker balance sheet.

  Comparison

  Unlike GCL's granular silicon edge, Tongwei's supply adjustment and cost advantages are comparatively limited within the polysilicon sector.

  Risks

  If Tier 1 capacity exits en masse or demand surges beyond expectations, profitability could improve dramatically; module business development might exceed expectations.

• Daqing A (688303.SS)

  Affected: The report deems the market overly optimistic about volume and pricing, with limited room for cost reductions, thus maintaining a sell rating.

  Strengths

  One of China's largest polysilicon producers, once positioned at the low end of the cost curve; relatively stable balance sheet.

  Weaknesses

  Aggressive expansion combined with weak demand is pushing it toward higher cost tiers; compared to peers, its cost-reduction space is narrower; long-term UTR constraints.

  Comparison

  The report points out that Daqing's potential for a profitability turnaround is weaker than some lower-cost competitors, with limited liquidity relief.

  Risks

  If polysilicon capacity exits massively or demand exceeds expectations, or if Daqing's cost-reduction pace accelerates faster than anticipated.

• Daqing ADR (DQ)

  Neutral: The report considers current depressed valuations already reflect pessimistic expectations, maintaining a neutral stance.

  Weaknesses

  As the parent company of Daqing A, faces similar industry-wide supply overhang and UTR constraints.

  Risks

  Industry capacity exit rhythms and fluctuations in photovoltaic demand; company cost-reduction progress slower or faster than expected.

Key data

• 2026 Average Polysilicon Price Forecast ReductionDown 5%Previously projected at RMB 40/kg, now lowered to RMB 40/kg
• 2026 Q2 Average Polysilicon Price ExpectationRMB 36/kgExpected to dip to RMB 35/kg in Q3 (due to seasonal electricity cost reductions), then rebound to RMB 40/kg in Q4 2026
• Average Target Price Reduction Across Covered StocksApproximately 6%Due to lower price expectations for 2026 and reduced UTR assumptions
• GCL Technology (3800.HK) Target Price/Implied UpsideHK$1.3 / +36.8%Based on a 1x 2027E P/B valuation, with a discount rate of 9.2%
• Tongwei Co., Ltd. (600438.SS) Target Price/Implied DownsideRMB 12.0 / -30.8%Based on an 8x 2027E EV/EBITDA valuation, with a discount rate of 10.1%
• Daqing ADR (DQ) Target Price/Implied DownsideUS$17.4 / -10.1%Based on a 0.3x 2027E P/B valuation (minus one standard deviation), with a discount rate of 11.6%
• Daqing A (688303.SS) Target Price/Implied DownsideRMB 15.8 / -31.2%Based on a 1x 2027E P/B valuation (minus one standard deviation), with a discount rate of 11.2%
• Q1 2026 Daqing A Inventory ImpairmentRMB 685 millionRecognized due to falling polysilicon prices
• Q1 2026 Tongwei Inventory ImpairmentRMB 861 millionRecognized due to falling polysilicon prices

Impact & implications

The report suggests that the current low-price environment favors consolidation toward Tier 1 manufacturers capable of producing high-quality products, a trend already evidenced by inventory clearance at Tongwei and GCL in April. However, the industry as a whole remains constrained by severe supply overhang, limiting upward price momentum through persistent supply-demand dynamics and slow cost-reduction progress. Specifically, GCL, leveraging its granular silicon technology and ultra-low inventory management, may achieve improved volume and profitability amid challenging market conditions, whereas Tongwei and Daqing A face challenges such as inflated market expectations, inventory burdens, and cost disadvantages, putting their valuations under pressure for revision.

Risks

• Weak photovoltaic demand or slower-than-expected capacity exits (e.g., acquisition of tail-end capacity falling short of projections) could lead to subpar price policy implementation and deteriorate profitability.
• Adverse shifts in raw material or electricity prices could raise production costs, resulting in lower-than-expected gross margins.
• For stocks under sell ratings: If Tier 1 polysilicon capacity exits significantly (e.g., unexpected acquisitions of tail-end capacity) or photovoltaic demand surges beyond expectations, profitability could improve markedly; similarly, if Tongwei's module business or Daqing's cost-reduction progress exceeds expectations, the current bearish outlook might shift.

What to watch

• Polysilicon price trends in Q2 and Q3 (especially the risk of Q3 dropping to RMB 35/kg, a potential low point).
• Progress in implementing anti-involution policies, including clear government pricing floors and enforcement of tail-end capacity exits.
• Order fulfillment and profitability contributions following the commissioning of GCL Technology's 200,000-ton lithium-ion battery cathode material line in Q2 2026.
• Inventory clearance trends and utilization rates (UTR) among Tongwei and GCL amid low-price conditions.