Sinking euro valuations undercut assumptions about currency risk, which are playing a big role in the solar sector, and exposing some regions and companies more than others.
May 27, 2010 – Sinking euro valuations undercut assumptions about currency risk, which can play a big role in the solar sector — and some regions and companies are more exposed than others.
Amid all the regional economic uncertainty in Europe, the euro has sunk from about $1.43 at the start of the year to about $1.22 today; Satya Kumar from Credit Suisse sees it further dropping to $1.16 over the next three months before recovering to $1.27 by year’s end. The declining euro causes financial strain for solar firms because as much as three-quarters of demand comes from countries that are hinged on the Euro, but most suppliers’ costs are recorded as US dollars or Chinese yuan, notes Auriga analyst Mark Bachman. He’s dropped his estimates and rankings for a number of solar stocks: JA Solar, Solarfun, SunPower, Suntech, Trina Solar, and Yingli Green Energy. Some firms (e.g., panel suppliers including Suntech, Canadian Solar, Yingli) are more at risk than others (First Solar, SunPower, MEMC, Trina), agrees Kumar.
China’s PV cell makers are being hit particularly hard, according to reports, since they make up 40% of global output, and 90% of that goes to Europe. A Suntech official reportedly pegged the total Chinese PV sector loss due to the euro at >$100M in sales. Yingli spent a big chunk of its 1Q10 financials conference call discussing the impact of the euro devaluation, now and looking ahead. Foreign exchange currency loss for the company in 1Q10 was RMB 169.1M (US $24.8M), more than three times what it was the prior quarter, primarily due to the sinking Euro, noted CFO Bryan Li, and it also affected accounts receivables and prepayments. With about half the company’s revenue made up in Euros (and likely to be again in 2Q), Li said the company, like others, has been looking at ways to get some monies moved over to US dollars, though he said the euro should flatten out in the near future.
The weak euro isn’t hitting Taiwan’s solar sector as hard, notes Digitimes. Motech reported a $4.6M loss in 1Q10 from exchange rates, but Gintech Energy made about $1.4M, and Green Energy and Sino-American Silicon Products each managed to eke out a slight gain in exchange rates.
Solar wafer producers generally sell to customers in US dollars (often with long-term supply deals) so they aren’t as hard-hit by short-term fluctuations –but ultimately upstream players will feel the impact as the supply chain reacts, Kumar predicts. MEMC, which has been making moves both downstream and upstream in solar, could lose $40M in revenues and about a third of its projected EPS ($0.56 vs. $0.75) in fiscal 2010, and another $105M in sales in 2011, he projects.
Some panel producers in Europe could actually benefit, though, he says, if the euro dips far enough and long enough to make panel production in Europe more viable than in China — to about $0.90, he calculates, assuming Chinese companies have costs of $0.90/$0.30 (nonpoly/poly), $1.20 nonpoly cost for European companies, $0.15/W depreciation, and 80% exposure to euro costs. Such parity might even already be at hand, he says — some producers get premiums, so maybe $1.15 might be enough to make them cost-competitive.