RPT-COLUMN-Yuan devaluation more likely to boost than hurt China commodity imports – by Clyde Russell (Reuters U.K. – August 14, 2015)


LAUNCESTON, Australia, Aug 13 (Reuters) – The sudden depreciation of the yuan will have flow-on effects in commodity markets, but reducing China’s demand for imports is unlikely to be one of them.

The yuan has lost around 3.5 percent of its value against the U.S. dollar in domestic trade since the People’s Bank of China this week took steps to devalue its currency, in a move widely interpreted as aimed at boosting the competitiveness of the struggling export sector.

The depreciation was more steep in international markets, where the yuan lost about 4.8 percent of its value as investors feared China was starting a sustained depreciation, which may lead to a global currency war.

Commodity prices, and the currencies of major natural resource exports such as Australia, also took a hit along with the yuan on the view that a weaker Chinese currency will dampen demand for imports.

Brent crude lost as much as 3.6 percent on Aug. 11, the day of the Chinese devaluation, although by the close on Wednesday at $49.66 a barrel, the decline had tempered to just 1.5 percent.

Spot iron ore .IO62-CNI=SI lost 0.8 percent from when it lasted traded on Aug. 6 ahead of a four-day weekend in Singapore to Wednesday’s $55.80 a tonne.

Converting the changes to yuan prices shows that China will only be paying marginally more for major commodity imports, such as crude and iron ore, and certainly way less than it was in recent years.

Brent crude ended Wednesday at 317.05 yuan a barrel, up 1.3 percent from the close on Aug. 10.

However, the yuan price of Brent crude has more than halved since the June last year, when it reached 716.67 yuan a barrel as Brent closed at its 2014-high of $115.06.

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