Yuan’s Drop May Benefit Solar Makers Pricing in Dollars

Chinese solar companies may benefit from the yuan’s devaluation since many contracts signed with their customers are priced in U.S. dollars.

China’s decision on Tuesday to devalue its currency is leading to concern that an economic slowdown in the world’s second-largest economy is deepening. The yuan reference rate fell for a third day on Thursday.

While sales in China for foreign brands like BMW AG and Yum! Brands Inc. may suffer, manufacturers, like those that make solar panels, may benefit from a weaker currency. That’s because of the currencies used in sales contracts, Jade Jones, an analyst at GTM Research in San Francisco, said in an interview.

“A lot of these deals are signed in dollars,” Jones said. “There have been other problems with depreciation before, specifically in the E.U. and Japan,” she said. Because of that, there was a movement to use U.S. dollars.

Trina Solar Ltd., the world’s largest solar panel manufacturer, sold 67.3 percent of its products outside the country last year, and said its 2014 foreign exchange loss of $21.9 million was mainly due to euro and yen depreciation against the dollar.

Trina, based in Changzhou, China, may be set for a gain in its holdings this year. It held $608.1 million in accounts receivable, mostly in yuan and dollars, and estimated in its annual report that a 10 percent yuan appreciation last year would have resulted in a 343 million yuan ($53.5 million) loss.

The company also held $352 million in cash or cash equivalents, mainly in dollars but also euros, pounds and yen, compared with the equivalent of $179 million in yuan.

Widespread Impact

Chinese manufacturers, many of which are producing at low profit margins, may not be the sole beneficiaries. Other emerging market currencies could follow.

“The yuan is lower but so are a number of Southeast Asian currencies,” Sven Eenmaa, an analyst at Stifel & Co. in San Francisco, said in a phone interview.

He noted that the Malaysian ringgit was also down against the dollar, which nulls any potential advantage Chinese manufacturers might gain over First Solar Inc., which manufactures most of its panels in Malaysia. “The impact is widespread and muted. I wouldn’t read too much into it.”

For SunEdison Inc. and its yieldco TerraForm Global, greater currency movements could make financing projects in emerging markets more difficult, he said.

“If volatility goes up, the ability to provide dollar-ized plants becomes more difficult.”