The euro has plummeted, causing solar industry firms on the Chinese mainland to suffer losses of hundreds of millions of dollars

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The euro has plummeted, causing solar industry firms on the Chinese mainland to suffer losses of hundreds of millions of dollars. Source: China Machinery Network. Publication date: May 21, 2010. Media reports citing senior officials at Suntech Power in Wuxi state that due to the sharp decline in the value of the euro, the company incurred exchange loss amounts of around $25 million in the first quarter； Aster amounts to $18 million; it is estimated that the solar industry in the mainland has lost hundreds of millions of dollars in profits due to the depreciation of the euro. 　　According to statistics, the mainland accounts for 40% of the global solar cell production, and over 90% of these products are exported to Europe; as a result, the euro’s exchange rate against the yuan has plummeted, having a significant impact on manufacturers in the mainland. To minimize losses, companies such as Risen Energy and Changzhou E-Jing Optoelectronics have adopted various measures to cope, including using forward foreign exchange transactions and automatic hedging. 　　He said that the current situation is still better than in 2008, as sales are good and there is strong demand from the European market; even if manufacturers have inventory, it can be sold off quickly. 　　Nevertheless, the losses resulting from exchange rate fluctuations continue to exert significant pressure on businesses. Senior officials at Wuxi Suntech said that the company’s exchange loss for the first quarter is estimated to be around $25 million ； Ats Corporation’s loss was 18 million dollars. In addition, Liu Qiang, the board secretary of Tuori New Energy, also revealed that the exchange loss for the first quarter of 2010 was approximately 2 to 3 million yuan. 　　Although the extent of exchange loss for companies such as Trina Solar, JA Solar, and Yingli in Changzhou is not yet clear, it is estimated that the entire solar industry has lost hundreds of millions of dollars in profits due to the depreciation of the euro. 　　Market experts believe that the amount of exchange loss could be even higher. In 2009, the battery production volume on the Chinese mainland was around 4,100 million watts; considering that Wuxi Suntech’s production was about 700 million watts, the loss amounted to 25 million dollars. Thus, the total exchange loss would far exceed 100 million dollars. Furthermore, due to the sharp drop in the euro exchange rate, market enthusiasm is showing signs of cooling. In the long term, it will be necessary to keep an eye on whether the number of power plants built in Europe will decline as a result. 　　On the other hand, to mitigate the impact of exchange rate fluctuations, companies such as Trina Solar, Risen Energy, and JCrystal Optoelectronics opt to use forward exchange contracts for currency conversion in order to reduce losses. 　　Furthermore, companies also use natural hedging methods to reduce losses, in other words, by purchasing more raw materials and components from Europe. The costs come from Europe, and the goods are sold to Europe as well; with this back-and-forth flow, the costs offset each other automatically, thus reducing the risks for the businesses involved.