China's yuan devaluation signals that global economic conditions have taken a turn for the worse, creating more pressure coming down to the markets of commodities, Goldman Sachs said.
"The CNY (yuan) devaluation was important for the markets of commodities and we think it points out that global macroeconomic conditions have changed," said Goldman Sachs in a note to clients.
"Even China has now joined the negative feedback loop that is running between the latest trends deflation, growth and deleveraging ... (and) we believe that the net effects on the market commodities are bearish, "he said.
bank said it believes the main areas of interest to commodity markets now understand how dollar-yuan and the weighted index traded yuan will evolve.
"A weak USD / CNY could see margins for exporters of Chinese raw materials improve and allow producers to start playing catch up with other emerging farmers markets, which have already been benefiting from currency depreciation," said said Goldman.
secondly, with the yuan's flat remaining weighted trade, there is no strong argument that the export manufacturing sector -LED would likewise improve competitiveness, the bank said.
"global manufacturing tends to be more spread out than the product offer and extends economies more flexible exchange rate regime, which gives more flexibility to buyers compare prices and change supplier. "
price of aluminum and steel face particular pressure down, the bank said.
" This (USD / CNY lower) could supply to buoy products that have large exports, a high proportion of costs CNY, and where producers are not too far above the marginal cost global supply curves (mainly aluminum, and to an extent in steel less). "
Despite the fact that the exchange rate policy could affect the markets for commodities, Goldman said it continues to believe that the support of China's domestic policy, both fiscal and monetary is also crucial for the markets of commodities.
infrastructure investment currently accounts for about 25 percent of steel and 15 percent of copper demand in China, the bank said.
price "This application has a low sensitivity to yuan-denominated and therefore the damping effects likely limited. But the withdrawal of financial support and more rapid debt reduction would result in a rapid decline in steel and copper demand. "
Reuters
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