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How RMB devaluation influence the non-ferrous metals market 2015-08-25
Deeply affected by the RMB exchange rate, the movements of metal in recent days is significantly affected the RMB exchange rate. In the situation that the profit and loss balance of imports relatively increased, “being set”is off the hook and "anti-set" is at the right time, thus including copper and other nonferrous metals and precious metals appear a trend of "strong outside but weak inside".
 
According to the official explanation, this round of RMB central parity adjustment, one hand is the overvalued of RMB, but the RMB central parity does not react the devaluation of market trends, hence needs to cut the central parity of RMB rate. On the other hand, the previous offer of RMB is unfair, deviate with the market,Therefore, "811" exchange event means that the process of exchange rate market-oriented is speed up.
 
Currently, the market is generally considered a one-time devaluation of the RMB devaluation. From the official press release, the RMB exchange rate held steady due to the support of following factors: First, China's economic growth fundamentals are sound, especially the indicator of the trade surplus, this means that in the first seven months, trade surplus is up to $ 305.2 billion as the commonly main project, this is the most important fundamentals that decide the supply and demand of foreign exchange market, and also an important basis to support a stronger RMB exchange rate. Second, after several days of devaluation adjustment, 3 percent devaluation pressure has been basically released, short-term devaluation should come to an end. Third, it can be seen from the analysis of governor Yi Gang, it is exaggerated about the outflow of $ 300 billion floating capital, global demand is still weak, China's export surplus is still quite large, so we do not need devaluation to promote exports, the central bank evaluate the impact devaluation on exports is “the influence bringing is entirely controllable and within certain limits”.
 
Some experts believe that with the remission of devaluation trend of RMB, the "strong outside but weak inside" trend of nonferrous metals is expected to end, post-market may appear a trend of both downward. As for the RMB trend in post-market, it will be relatively stable under normal conditions, however, due to the current complex situation does not exclude the risk of loss of control. Devaluation of RMB leads to the increased imports balanced parity of non-ferrous, to fix this parity, the metal in domestic showed o trend of rise up, while in the international market, due to the appreciation of dollar and the depreciation of RMB, which means that the purchasing power of RMB is declining, so that the China demand for metals is facing the risk of downside, which leads to the fell sharply of international non-ferrous metal prices.
 
After the repair of relatively balanced import repair,it is the supply and demand which leads the trend of metal product. On the one hand, the increasing of China imports cost, profit of domestic firms is shrinking, the reason is the increase cost of imports is difficult to pass downstream in the case of weak demand; on the other hand, the carry trade and financing transactions disappears due to the devaluation of RMB, thus large financing commodity facing the risk of undersell in the country,thereby increasing the supply pressure.
 
Specifically, in terms of China's net imports goods, the increasing of China imports cost caused by RMB devaluation, the demand in domestic shrinking, anti sets trade leads the trend pattern of "strong outside but weak inside", recently both non-ferrous metals and iron ore all reflected this point. As for China's net imports goods, Finished steel production rose less than nonferrous metals, gold and others nearest, the reason is that although the devaluation will stimulate export, however, the international steel prices fall, making exports profits falling, which is not conducive to the inventory and to the steel production.
 
All in all, the RMB exchange rate fluctuations also lead to increased volatility of non-ferrous metal prices rise, in the case of repair parity relationship, non-ferrous metals showing a pattern of "strong outside but weak inside". However, due to the outflow of funds on behalf of devaluation, the real economy may face heavy downward pressure, therefore, devaluation triggered price revaluation, but the end result is not upward but downward.



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