China's pledge to allow a more flexible exchange rate for the yuan would help solar companies that export to China, but could hurt Chinese manufacturers that sell abroad, according to a senior analyst at Wells Fargo Securities.
Exporters such as US silicon maker MEMC Electronic Materials Inc and German chemicals specialist Wacker Chemie AG are well-positioned to benefit the most, partly because a stronger yuan may increase the purchasing power for Chinese companies that source products abroad, analyst Sam Dubinskysaid.
In addition, a firmer pricing environment may benefit US-based First Solar Inc and SunPower Corp as well as European and Japanese vendors, as Chinese vendors may need to raise pricing to help offset foreign exchange headwinds, the analyst said.
"This could help alleviate pricing pressure the industry faces, as the Chinese typically set the floor for the market," Dubinsky added.
China scrapped a 23-month-old peg to the dollar on Saturday, just a week ahead of a G20 summit in Canada, and following pressure from the United States to free up the currency. China's yuan surged the most since its revaluation in 2005, and global markets gained following the surprise weekend announcement by China's central bank that it would allow greater flexibility for the currency.
The move is expected to boost purchasing power and demand in China, the world's third largest economy. A higher yuan would also help temper inflation by pushing down import prices, which could mean Beijing would have less need to tighten monetary policy aggressively.
Still, China's decision to allow the yuan to strengthen could hurt Chinese panel makers, particularly partially integrated companies such as Suntech Power Holdings Co Ltd, Canadian Solar Inc, and Solarfun Power Holdings Co Ltd, Dubinsky said.
"Chinese panel producers sell mostly in euro/US dollar, but have manufacturing costs in renminbi; a stronger renminbi could negatively impact margin for these companies," he said.
Vertically integrated vendors such as China's Trina Solar Ltd and Yingli Green Energy Holding Co Ltd face less margin risk when compared with partially integrated vendors, the analyst said.
Dubinsky named London-listed ReneSola Ltd its top pick, saying the China-based manufacturer of solar wafers is less directly exposed to foreign exchange headwinds as it produces and sells mostly in China.
The yuan closed at 6.7976 against the dollar on Monday, up 0.42% from Friday's close, marking its biggest daily gain against the US currency since the revaluation set the currency free to move in a managed floating exchange rate system.
