China solar polysilicon industry: 2Q26 polysilicon earnings missed as oversupply clouds planned price increases

Overview

This report reviews 2Q26 results and the outlook for China’s polysilicon producers GCL Tech, Daqo and Tongwei. Goldman Sachs argues that a proposed sector price recovery faces a difficult supply-demand backdrop, although GCL Tech remains differentiated by its low cost base, granular-polysilicon technology and inventory position.

Core views

The three covered polysilicon producers reported weaker-than-expected 2Q26 earnings. Lower ASPs were the principal pressure point: Daqo’s 2Q26 ASP was 8% below Goldman Sachs estimates. Asset impairments further weighed on results, including Rmb341mn at Daqo A and Rmb1,186mn at Tongwei in 2Q26, as well as Rmb172mn at GCL in 1H26. This occurred despite shipments for the three Tier-1 companies averaging 15% above Goldman Sachs estimates. Tongwei’s 2Q26 revenue was Rmb22,232mn, down 10% year on year, and net loss was Rmb2,675mn. Daqo A’s revenue was Rmb434mn and net loss Rmb794mn, versus Goldman Sachs estimates of Rmb366mn and a Rmb327mn loss, respectively. GCL Tech’s 1H26 net loss was Rmb2,081mn, 17% worse than the prior Goldman Sachs estimate. Management guidance points to a sharp 2H26 pricing recovery, with an implied polysilicon price around Rmb40/kg, 25% above end-June. GCL expects Rmb40-45/kg in 2H26, while Daqo expects Rmb38-42/kg; management expectations for longer-term pricing extend higher if inventories deplete. Goldman Sachs is skeptical of execution. Joint price increases initiated in early August had not yet been accepted by downstream customers, while August monthly polysilicon production rose 16% month on month and producer inventory rose 16% month on month by month-end. The institution expects the industry to remain oversupplied even if demand improves in 2H26, with inventories already above six months by its estimate. Continued cost reductions by Tier-1 producers also limit pricing power. Goldman Sachs raises its 2H26 price forecasts but lowers shipment-volume forecasts in accordance with producers’ operating strategies, and keeps its average polysilicon price forecast unchanged at Rmb32/kg for 2027E-2030E. The report revises covered-company 2026E-2030E net-profit estimates by an average range of -9% to +14%, with target-price changes ranging from -11% to +13%. For Tongwei, lower polysilicon shipments and higher 2H26 ASP assumptions reduce estimates; its 12-month target remains Rmb4.2. Daqo A’s target falls 11% to Rmb7.6, reflecting lower shipment assumptions and higher SG&A associated with new-business development. Daqo ADR’s US$10 target is unchanged. GCL Tech’s target rises 13% to HK$0.79, supported by expected LFP earnings accretion. Goldman Sachs sees limited near-term earnings upside from diversification. It assumes no revenue accretion for Daqo’s AIDC equipment initiative in 2026E-2030E, while incorporating higher SG&A. For GCL’s LFP cathode initiative, it estimates attributable earnings accretion of Rmb30mn in 2026E, Rmb216mn in 2027E and Rmb360mn annually in 2028E-2030E, based on the 400kt capacity committed so far. GCL has committed Rmb3bn for 400kt of Sichuan capacity by 1H27 and holds a 30% stake; management indicated at least Rmb3,000 per tonne of net profit. Daqo’s planned AIDC products remain early in commercialization, with ESS products targeted for shipment by 1H27 and transformer products by 2H27. At the company level, Goldman Sachs retains a Buy rating on GCL Tech because it sits at the low end of the cost curve and maintains only three to seven days of inventory, versus an industry average above six months. The report expects growing downstream adoption of differentiated FBR granular polysilicon to improve GCL’s volume and profitability despite sector oversupply. It retains Sell ratings on Daqo ADR and Daqo A, arguing that their valuations already reflect too much optimism on a new price-hike cycle and that Daqo has less scope for cost reduction than key peers. Daqo A is expected to be pushed toward the higher end of the cost curve by aggressive Tier-1 capacity expansion and weak demand. Tongwei is also Sell-rated because of its high polysilicon exposure, which Goldman Sachs views as the least-preferred part of its sector coverage; it expects normalized ROE to remain below its through-cycle level as oversupply persists.

Analysis framework

Goldman Sachs compares reported results with its prior estimates, then tests management pricing guidance against production, inventory, demand and cost trends. It translates this supply-demand assessment into shipment, ASP, profit and target-price revisions, and evaluates company differentiation through cost positions, inventory, technology, diversification plans and P/B-based valuation.

Methodology notes

• Industry AnalysisSupply-demand framework

  Polysilicon supply-demand and inventory analysis

  The report assesses whether proposed price increases can hold by comparing rising production and inventories with expected module demand and potential capacity exits.

• Industry AnalysisCost curve analysis

  Producer cost-curve positioning

  The report contrasts GCL Tech's low cost position and cost-reduction potential with Daqo's weaker cost outlook to assess relative profitability resilience.

• Valuation methodsPB valuation

  P/B valuation linked to historical P/B and ROE correlations

  The 12-month targets for GCL Tech, Daqo ADR, Daqo A and Tongwei are derived from specified 2026E P/B multiples using each company’s historical P/B-ROE relationship.

Asset mapping & comparison

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

• GCL Tech (03800.HK)

  Covered polysilicon producer with a relative cost, inventory and granular-polysilicon technology advantage.

  Strengths

  Low-end cost-curve position, three to seven days of inventory, continued cost reduction and differentiated FBR granular polysilicon.

  Weaknesses

  Sector remains severely oversupplied; near-term LFP contribution is limited.

  Comparison

  Inventory is substantially below the industry average of more than six months; Goldman Sachs sees more cost and volume upside than peers.

  Risks

  Weaker solar demand, slower capacity exit, unsuccessful pricing-policy execution, or higher raw-material and electricity costs.

• Daqo New Energy (DQ)

  Covered parent of Xinjiang Daqo New Energy Co.; exposed to polysilicon pricing and cost competitiveness.

  Strengths

  Potential benefits if capacity exits, solar demand or cost reduction exceed expectations.

  Weaknesses

  Goldman Sachs considers valuation unattractive and sees limited near-term new-business upside.

  Comparison

  The report sees Daqo as having less favorable cost dynamics than GCL Tech and Tongwei.

  Risks

  Stronger solar demand, greater capacity exit, faster cost reductions, or faster AIDC commercialization could improve the outlook.

• Xinjiang Daqo New Energy Co. (688303.SH)

  Covered Daqo subsidiary and China-listed polysilicon producer.

  Strengths

  Potential profitability improvement from a meaningful Tier-1 capacity exit, stronger demand or faster cost reduction.

  Weaknesses

  Expected to move toward the high end of the cost curve; valuation is viewed as pricing in excessive long-term price and volume optimism.

  Comparison

  Goldman Sachs believes Daqo has less capacity-mix cost-reduction headroom than peers.

  Risks

  Capacity exits, stronger solar demand or faster-than-expected cost reduction.

• Tongwei (600438.SH)

  Covered integrated solar company with substantial upstream polysilicon exposure.

  Strengths

  Integrated business from polysilicon through cells and modules; potential upside from better module development.

  Weaknesses

  High polysilicon exposure in a severely oversupplied segment; normalized ROE is expected to remain below through-cycle levels.

  Comparison

  Goldman Sachs identifies polysilicon as its least-preferred segment within sector coverage.

  Risks

  Meaningful polysilicon capacity exits, stronger solar demand or better-than-expected module business development.

Key data

• Covered-company shipment versus estimate15% above Goldman Sachs estimates on average2Q26 shipments for GCL Tech, Daqo and Tongwei
• Daqo 2Q26 ASP versus estimate8% below Goldman Sachs estimateA major contributor to the earnings miss
• Daqo A asset impairmentRmb341mn2Q26
• Tongwei asset impairmentRmb1,186mn2Q26
• GCL asset impairmentRmb172mn1H26
• Implied 2H26 polysilicon priceRmb40/kg25% above end-June, based on management guidance
• August production change16% month on month increaseMonthly polysilicon production
• August producer inventory change16% month on month increaseAt end-August
• Long-term polysilicon price forecastRmb32/kg on averageGoldman Sachs forecast for 2027E-2030E, unchanged
• Estimate revisions-9% to +14%Average range of 2026E-2030E net-profit revisions across coverage

Impact & implications

The report argues that higher quoted polysilicon prices alone are unlikely to restore earnings quickly because downstream acceptance, elevated inventories, continuing output growth and falling Tier-1 costs constrain sustainable pricing. It identifies GCL Tech as relatively better positioned through cost, technology and inventory advantages, while viewing Daqo and Tongwei as more exposed to an extended weak-polysilicon environment.

Risks

• For GCL Tech, weaker solar demand, slower capacity exit or higher raw-material and electricity costs could weaken profitability.
• For Daqo, greater-than-expected Tier-1 capacity exits, stronger solar demand, faster cost reductions or faster AIDC commercialization could improve the outlook.
• For Tongwei, stronger solar demand, capacity exits or better-than-expected module development could improve profitability.

What to watch

• Whether downstream customers accept the industry’s joint polysilicon price increases.
• Monthly polysilicon production and producer inventories after the August increases.
• The pace of solar demand recovery and industry capacity exits.
• Tier-1 producers’ cost-reduction progress.
• Commercialization milestones for GCL’s LFP cathode project and Daqo’s AIDC products.