12 Aug 2015
Yuan devaluation poses four headwinds for the metals - Deutsche Bank
FXStreet (Bali) - Grant Sporre, Research Analyst at Deutsche Bank, notes that the devaluation of the RMB poses four headwinds for the metals market.
Key Quotes
"A 2% devaluation of the RMB on its own is fairly limited, but if this trend continues, we see four headwinds."
"1) China accounts for 45 – 50% of global metals demand, so the obvious impact is a weaker RMB makes commodities more expensive to import. The immediate impact will be that the arbitrage between domestic and imported commodities closes up, discouraging imports in favour of domestic supply in commodities such as coking coal and zinc."
"2) most commodities are in balance or over-supplied, with prices being set by the marginal cost of production. Weaker producer currencies will result in lower costs, and lead to lower prices."
"3) China is a growing exporter of its overcapacity, particularly in metals such as aluminium, steel and stainless steel, a weaker RMB simply improves the competitiveness of exports."
"4) Tighter monetary/financial conditions may dampen the demand recovery."
Key Quotes
"A 2% devaluation of the RMB on its own is fairly limited, but if this trend continues, we see four headwinds."
"1) China accounts for 45 – 50% of global metals demand, so the obvious impact is a weaker RMB makes commodities more expensive to import. The immediate impact will be that the arbitrage between domestic and imported commodities closes up, discouraging imports in favour of domestic supply in commodities such as coking coal and zinc."
"2) most commodities are in balance or over-supplied, with prices being set by the marginal cost of production. Weaker producer currencies will result in lower costs, and lead to lower prices."
"3) China is a growing exporter of its overcapacity, particularly in metals such as aluminium, steel and stainless steel, a weaker RMB simply improves the competitiveness of exports."
"4) Tighter monetary/financial conditions may dampen the demand recovery."