Recovering yuan spreads ripples in minerals markets

By William Clarke
Published: Friday, 18 January 2019

The yuan-dollar exchange rate has changed direction after the Chinese currency saw its biggest one-week rise since 2005, which will have a broad bearing on minerals markets.

The yuan, the tightly controlled Chinese currency, is trading at its highest level against the dollar since July 2018, in a move which influences a wide range of industrial minerals markets.

The Chinese currency fell sharply against the dollar in June 2018, reaching lows of nearly 7 yuan to a dollar in October. This was the lowest level since 2008.

This depreciation in the currency, which is subject to tight government control, was seen as an aggressive move against US trade sanctions, as it made Chinese exports more competitive.

But the yuan sharply changed direction in the week to January 11, rising by 1.3%. This is the sharpest rise seen since 2005, and left the currency at its highest point against the dollar since July 2018.

This has been interpreted as a peace offering to US negotiators as trade talks continue. 

The yuan-dollar exchange rate is a key factor in global industrial minerals minerals markets, given the dollar’s position as the currency of international trade, and China’s position as both a producer and consumer of minerals.

China is a major producer of a wide range of industrial minerals, including refractory products, antimony, barite and rare earths. It is also a major consumer of a number of minerals produced elsewhere, including lithium, ilmenite, and iodine.

The dollar exchange rate is a key factor for these markets. A stronger dollar against the yuan means that miners and producers in China can accept a lower dollar-denominated price for their exports

This dollar effect has been noted in a number of markets, suppressing the price of exports.

In the fourth quarter of 2018, titanium dioxide sellers told Fastmarkets they were still able to make a profit despite rapidly declining prices for the pigment, due to the weaker yuan.

Fastmarkets assessed the price of titanium dioxide pigment,high quality, bulk volume, cfr Asia as falling to $2,600-2,300 by mid-November 2018 from $2,600-3,000 per tonne at the start of October 2018.

And in August of last year, amid quiet demand during the summer lull in main European markets, the depreciation in the yuan contributed to driving down market prices for some grades of bauxite and fused alumina, despite restrictions on Chinese supply remaining in place.

On August 9, Fastmarkets assessed the price of fused brown alumina, 95% min Al2O3, refractory sized (0-6mm), fob China, at $730-750 per tonne, unchanged from three months earlier.

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