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Chinese players react to the weakening yuan

by ChemOrbis Editorial Team -
  • 14/08/2015 (04:05)
Polymer markets in China have been rocked recently following an unexpected decision on the part of the Chinese central bank to reduce the reference rate for the yuan. The bank reduced the rate for three consecutive days from August 11 to August 13, lowering the rate by a total of 4.6%. Analysts commented that the bank’s decision has brought the yuan closer into line with other global currencies, many of which have lost ground against the dollar over the past year. Other analysts commented that the bank may be hoping to boost exports in the face of disappointing economic data that suggests that China may struggle to hit the government’s targeted GDP growth of 7% this year.

Commodity markets in general may face a slump following the devaluation of the yuan as a report from Credit Suisse noted that past periods of weakness for the Chinese currency have tended to correspond to slumps in commodity markets as China is a key importer of a wide range of industrial commodities. Polymer prices to the country are already said to be facing downward pressure from the bank’s decision to cut its reference rate. A trader offering Brazilian LDPE and Saudi Arabian HDPE injection commented, “We were able to conclude some deals for injection earlier in the week, but buying interest has gotten noticeably thinner following the devaluation of the yuan.” A PE distributor based in Shanghai added, “Buyers are shying away from the import market now as they are worried about the possibility of further depreciation in the currency in the coming weeks.”

A player in the PP market commented, “Overseas sellers had been struggling to maintain competitiveness against local cargoes even before the central bank’s decision to lower the reference rate. We believe that import prices will face further downward pressure following the devaluation.” Chinese PP sellers may also turn more of their attention towards export markets, with a trader in Malaysia reporting that they were approached about the possibility of distributing coal based Chinese PP in the Southeast Asian region. “Regional sellers are aggressively defending their market share these days, so we do not think that Chinese PP cargoes will be able to find a home here for now,” the trader stated.

In the PET market, Chinese sellers expressed hopes that a weaker yuan would help them to increase their export volumes. A source from a Chinese PET producer commented, “Demand for our material is not bad these days and we are hopeful that we will be able to book more export deals following the devaluation of the yuan.” A trader offering Chinese PET to Southeast Asia reported, “We have not seen any major impact from the softening of the yuan yet and we feel that this may prove to be a temporary situation.” A source from a Chinese producer of conventional PVC also expressed hopes of being able to conclude more export deals following the depreciation of the yuan, adding that they plan to allocate more of their production to overseas markets in the coming month.
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