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Slumping yuan threatens more gloom for world's metals producers
[HONG KONG] It's just what global producers of steel and aluminum didn't need: a yuan devaluation that makes the flood of exports from the world's biggest producer even cheaper.
China's shipments of steel and aluminum, used in everything from fridges to skyscrapers, surged to a record this year as the slowing economy created a domestic surplus with nowhere else to go. The surprise move by the central bank, which spurred the biggest two-day slump in the yuan since 1994, makes the products even cheaper, threatening more pain for world rivals struggling with lower prices.
Chinese exports are "causing a disturbance in the entire pricing and also the overall supply and demand dynamics in the international market," said Seshagiri Rao, chief financial officer at JSW Steel Ltd., India's third-biggest steelmaker.
"We are already seeing a lot of trade actions by various countries. In my view this will further create problems for the industry. Imports will continue to rise." The devaluation of the yuan has sparked fears of an Asian currency war and damped bets the Federal Reserve will raise interest rates in September. The currency weakened as much as 2 per cent to a four-year low of 6.4510 per dollar in Shanghai, after a 1.8 per cent tumble on Tuesday.
China's steel shipments surged 27 per cent to 62.13 million metric tons in the first seven months of the year, the highest ever for the period, customs data compiled by Bloomberg show. Exports were about the same as output in Japan, the world's second-biggest producer, according to World Steel Association data. Aluminum sales rose 28 per cent to 2.87 million tons.
Prices for steel hot-rolled coil exported from China slumped 31 per cent in the past year, according to data from McGraw Hill Financial Inc.'s Platts. Aluminum prices declined 23 per cent on the London Metal Exchange.
At the current pace of growth of about 50 per cent seen in the past few months, India's steel imports may surge to 15 million tons from 9.3 million tons a year earlier, JSW's Rao said by phone.
"Almost 20 per cent of Indian steel demand is from imports, which is very disturbing and destabilizing." Steel imports jumped 58 per cent to 3.5 million tons in the four months ended July 31, government data show.
Tata Steel Ltd, the country's biggest producer, reported on Tuesday a 19 per cent drop in group earnings before interest, taxes, depreciation and amortization in the three months ended June 30 amid the slide in steel prices. The company's shares have plunged 54 per cent in the past year.
The country increased import tariffs on some steel products for the second time in two months on Wednesday. The tax on flat- rolled products was raised 2.5 per centage points to 12.5 per cent, while the duty on stainless-steel bars, rods, and wires increased to 10 per cent, the finance ministry said.
The growth in China's aluminum exports accelerated this year after the country ramped up new low-cost capacity. The surge has led to a collapse in premiums paid on top of exchange prices. Premiums in the US have reached a 42-month low, according to Harbor Intelligence.
Century Aluminum Co, a US producer, cited pressure from Chinese exports in announcing the permanent closure of an idled smelter. Shipments from China are a "real threat to orderly, competitive and strong markets," Chief Executive Officer Michael Bless said in a conference call this month.