Homepage
PR Newswire
18-08-2011, 02:27 PM
analYSIS-Rising yuan may not rescue commodities if West slumps (2011/08/18 14:11PM)
--------------------------------------------------------------------------------
* Yuan strength unlikely to inflate China''s commodity
imports
* China''s domestic demand won''t offset weakness in EU, U.S.
* Industrial metals seen supported more than oil
By Manolo Serapio Jr
SINGAPORE, Aug 18 (Reuters) - Arising yuan may not
massively boost China''s commodity imports as demand from the
developed world crumbles, leaving raw materials from oil to
copper vulnerable to more shocks.
While a stronger yuan increases the buying power of the
world''s topcommodity importer, China''s domestic demand will not
be enough to compel Beijing to aggressively snap up commodities
when key markets like the United States and Europe are facing
economic uncertainty.
China last week allowed the yuan to rise atits fastest
weekly pace since the global financial crisis in 2008,
signalling that it is moving away from a single-minded focus on
protecting exporters as it worries about inflation and the
weakening dollar. [ID:nL3E7JF054]
"China''s growth isnot in a vacuum. At the end of the day,
China too is reliant on demand from the European Union and the
United States," said Vishnu Varathan, economist for Asia at
Capital Economics.
"China''s domestic demand alone won''t be strong enough to
morethan offset what''s happening on the global stage."
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Commodity prices then and now:
http://link.reuters.com/vam88r
China yuan and exports:
http://link.reuters.com/puk33s
China''s trade with the U.S. and Europe:
http://link.reuters.com/fyg33s
Yuan to gain vs FX basket as policy evolves [ID:nL3E7JF054]
Asia commods markets insulated from crisis [ID:nL3E7JF0GW]
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
The two troubled areas are also China''s biggest export
markets -- the EU takes a fifth of its shipments and the U.S.
around 17 percent, based on Chinese governmentdata for July.
Spot yuan , which hit an all-time high of 6.3820
per dollar this week, has risen 6.87 percent since it was
depegged from the dollar in June 2010 and 3.17 percent so far
this year.
"It helps but we do not expect anappreciation beyond 5
percent is on the cards," said Dominic Schnider, executive
director for wealth management research at UBS.
The recent wild swings in commodity prices, including oil''s
8.6 percent slide in a day in May''s market rout,suggests
even a 5 percent appreciation in the yuan will have little
impact.
The current prices of commodities are also well above levels
seen during the previous crisis, giving China less incentive to
buy aggressively.
Copper ataround $8,940 a tonne is three times more
expensive than its lowest level during the 2008-09 global
financial crisis.
U.S. crude, despite falling 24 percent from this year''s high
to around $87 a barrel, is still more than double its 2008
trough
BUYING SPREE NO MORE
China''s buying spree supported prices of key inputs from oil
to grains and base metals during the last global financial
crisis as Beijing, backed by a massive 4 trillion yuan ($627
billion) stimulus budget,restocked at low prices.
But times have changed, with Beijing''s hands now tied by
tighter credit and without stimulus cash to spare.
Fighting three-year high inflation, China has raised
interest rates three times and upped banks'' requiredreserves
ratio six times this year, making it more expensive for buyers
to boost stockpiles.
"That stimulus was the saviour for cyclical commodities
especially base metals," said Schnider at UBS.
"I don''t think China would be eager to giv it another big
shot especially in an environment where you have price pressure
creeping up from all sides."
China''s tight credit policy could restrict the country''s
spot purchases of refined copper in the fourth quarter, traders
said, incontrast to the past two years when Beijing''s loose
monetary policy helped lift imports to record highs.
"End-users are more sensitive to price hikes given the fact
that it is not easy to obtain credit," said Chen Dixi, copper
analyst at JinruiFutures.
China may also reduce investment and slow the construction
of new high-speed rails for the rest of the year after a fatal
accident last month, which could cut orders for copper-contained
parts and copper-based power cables, said Antaikeanalyst Yang
Changhua.
But China''s latest move to allow the yuan to appreciate
faster than before suggests that the country has scope to
selectively ease monetary policy.
"We believe that China, from a policy point of view, will engineer a soft landing and I think they will go out of their
way to avert a hard landing," said Capital Economics'' Varathan.
"So it will have some scope to loosen credit though this
will be more targeted. They will still have restrictions on the property market but they will cushion other sectors especially
the SMEs (small and medium enterprises) to ensure that the job
market doesn''t spiral downwards," he said.
That flexibility could help some Chinese buyers secure bank
financing andlook for bargains to stock up when commodity
prices fall, although not all can benefit.
WIN SOME, LOSE SOME
"How much weight China can pull will depend on the commodity
in question," said Xinyi Chen, analyst at Barclays Capital.
"We are still optimistic on copper and think that there will
still be a pickup in imports towards the end of the year because
the end consumption that is tied to copper will be public
housing, which is not tied to the current climate," she said.
China is ploughing money into massive development projects,
including an ambitious plan to build 20 million affordable
housing units this year and next.
Other potential winners from the construction frenzy include
iron ore and coking coal, asmills churn out more steel while
the rush by cement companies to ramp up production would also
boost demand for thermal coal, a key source of energy for these
plants.
China''s strength, however, may not have that big an impact
on oil prices.
"Crude oil is still largely dependent on the developed world
and if we see significant weakness in demand there, then oil
prices are definitely at risk," said UBS'' Schnider.
The United States is the world''s biggest oil user, with 21
percent ofglobal demand of 88 million barrels per day at the
end of the second quarter, double that of No. 2 consumer China,
according to data from the International Energy Agency.
China''s oil consumption has been losing steam since May,
with implied oildemand up a paltry 0.4 percent in July, the
second lowest this year, on climbing crude costs that cut
refining margins.
"Can China hold everything up by itself? No it can''t, but it
can hold prices well above levels during the global crisis," said Citigroup analyst David Thurtell.
"It''s in China''s long-term interest to not let prices get
too low because they want to see more mines being developed and
more smelters being brought on stream."
($1 = 6.383 yuan)
(Additionalreporting by Polly Yam in Hong Kong and Fayen Wong
in Shanghai; Editing by Michael Urquhart)
((manolo.serapio@thomsonreuters.com)(+65 6870 3884)(Reuters
Messaging: manolo.serapio.reuters.com@reuters.net))
Keywords: CHINA COMMODITIES/
--------------------------------------------------------------------------------
* Yuan strength unlikely to inflate China''s commodity
imports
* China''s domestic demand won''t offset weakness in EU, U.S.
* Industrial metals seen supported more than oil
By Manolo Serapio Jr
SINGAPORE, Aug 18 (Reuters) - Arising yuan may not
massively boost China''s commodity imports as demand from the
developed world crumbles, leaving raw materials from oil to
copper vulnerable to more shocks.
While a stronger yuan increases the buying power of the
world''s topcommodity importer, China''s domestic demand will not
be enough to compel Beijing to aggressively snap up commodities
when key markets like the United States and Europe are facing
economic uncertainty.
China last week allowed the yuan to rise atits fastest
weekly pace since the global financial crisis in 2008,
signalling that it is moving away from a single-minded focus on
protecting exporters as it worries about inflation and the
weakening dollar. [ID:nL3E7JF054]
"China''s growth isnot in a vacuum. At the end of the day,
China too is reliant on demand from the European Union and the
United States," said Vishnu Varathan, economist for Asia at
Capital Economics.
"China''s domestic demand alone won''t be strong enough to
morethan offset what''s happening on the global stage."
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Commodity prices then and now:
http://link.reuters.com/vam88r
China yuan and exports:
http://link.reuters.com/puk33s
China''s trade with the U.S. and Europe:
http://link.reuters.com/fyg33s
Yuan to gain vs FX basket as policy evolves [ID:nL3E7JF054]
Asia commods markets insulated from crisis [ID:nL3E7JF0GW]
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
The two troubled areas are also China''s biggest export
markets -- the EU takes a fifth of its shipments and the U.S.
around 17 percent, based on Chinese governmentdata for July.
Spot yuan , which hit an all-time high of 6.3820
per dollar this week, has risen 6.87 percent since it was
depegged from the dollar in June 2010 and 3.17 percent so far
this year.
"It helps but we do not expect anappreciation beyond 5
percent is on the cards," said Dominic Schnider, executive
director for wealth management research at UBS.
The recent wild swings in commodity prices, including oil''s
8.6 percent slide in a day in May''s market rout,suggests
even a 5 percent appreciation in the yuan will have little
impact.
The current prices of commodities are also well above levels
seen during the previous crisis, giving China less incentive to
buy aggressively.
Copper ataround $8,940 a tonne is three times more
expensive than its lowest level during the 2008-09 global
financial crisis.
U.S. crude, despite falling 24 percent from this year''s high
to around $87 a barrel, is still more than double its 2008
trough
BUYING SPREE NO MORE
China''s buying spree supported prices of key inputs from oil
to grains and base metals during the last global financial
crisis as Beijing, backed by a massive 4 trillion yuan ($627
billion) stimulus budget,restocked at low prices.
But times have changed, with Beijing''s hands now tied by
tighter credit and without stimulus cash to spare.
Fighting three-year high inflation, China has raised
interest rates three times and upped banks'' requiredreserves
ratio six times this year, making it more expensive for buyers
to boost stockpiles.
"That stimulus was the saviour for cyclical commodities
especially base metals," said Schnider at UBS.
"I don''t think China would be eager to giv it another big
shot especially in an environment where you have price pressure
creeping up from all sides."
China''s tight credit policy could restrict the country''s
spot purchases of refined copper in the fourth quarter, traders
said, incontrast to the past two years when Beijing''s loose
monetary policy helped lift imports to record highs.
"End-users are more sensitive to price hikes given the fact
that it is not easy to obtain credit," said Chen Dixi, copper
analyst at JinruiFutures.
China may also reduce investment and slow the construction
of new high-speed rails for the rest of the year after a fatal
accident last month, which could cut orders for copper-contained
parts and copper-based power cables, said Antaikeanalyst Yang
Changhua.
But China''s latest move to allow the yuan to appreciate
faster than before suggests that the country has scope to
selectively ease monetary policy.
"We believe that China, from a policy point of view, will engineer a soft landing and I think they will go out of their
way to avert a hard landing," said Capital Economics'' Varathan.
"So it will have some scope to loosen credit though this
will be more targeted. They will still have restrictions on the property market but they will cushion other sectors especially
the SMEs (small and medium enterprises) to ensure that the job
market doesn''t spiral downwards," he said.
That flexibility could help some Chinese buyers secure bank
financing andlook for bargains to stock up when commodity
prices fall, although not all can benefit.
WIN SOME, LOSE SOME
"How much weight China can pull will depend on the commodity
in question," said Xinyi Chen, analyst at Barclays Capital.
"We are still optimistic on copper and think that there will
still be a pickup in imports towards the end of the year because
the end consumption that is tied to copper will be public
housing, which is not tied to the current climate," she said.
China is ploughing money into massive development projects,
including an ambitious plan to build 20 million affordable
housing units this year and next.
Other potential winners from the construction frenzy include
iron ore and coking coal, asmills churn out more steel while
the rush by cement companies to ramp up production would also
boost demand for thermal coal, a key source of energy for these
plants.
China''s strength, however, may not have that big an impact
on oil prices.
"Crude oil is still largely dependent on the developed world
and if we see significant weakness in demand there, then oil
prices are definitely at risk," said UBS'' Schnider.
The United States is the world''s biggest oil user, with 21
percent ofglobal demand of 88 million barrels per day at the
end of the second quarter, double that of No. 2 consumer China,
according to data from the International Energy Agency.
China''s oil consumption has been losing steam since May,
with implied oildemand up a paltry 0.4 percent in July, the
second lowest this year, on climbing crude costs that cut
refining margins.
"Can China hold everything up by itself? No it can''t, but it
can hold prices well above levels during the global crisis," said Citigroup analyst David Thurtell.
"It''s in China''s long-term interest to not let prices get
too low because they want to see more mines being developed and
more smelters being brought on stream."
($1 = 6.383 yuan)
(Additionalreporting by Polly Yam in Hong Kong and Fayen Wong
in Shanghai; Editing by Michael Urquhart)
((manolo.serapio@thomsonreuters.com)(+65 6870 3884)(Reuters
Messaging: manolo.serapio.reuters.com@reuters.net))
Keywords: CHINA COMMODITIES/
To be simple is the best thing in the world; to be modest is the next best thing. I am not sure about being quiet.- G.K. Chesterton
Do not condemn the judgment of another because it differs from your own. You may both be wrong.- Dandemis
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt.- Bertrand Russell
Do not condemn the judgment of another because it differs from your own. You may both be wrong.- Dandemis
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt.- Bertrand Russell
