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China’s yuan devaluation expected to have little impact on iron ore

The devaluation of the yuan is unlikely to affect demand for seaborne iron ore in China as most high-cost domestic mines are already shut, Macquarie said Wednesday.

The move may prompt some higher-cost mines to produce for longer, but the industry has already largely consolidated, analysts said.

“A large proportion of China’s high cost mines have already been shut and hence China’s production share is small and the cost curve is not nearly as efficient as it used to be,” the report said.

The coal, aluminum, nickel and zinc markets could see more of an impact, it said.
Thermal coal could be affected more than met coal, where the weaker yuan lowering dollar-denominated costs would disrupt a more finely balanced supply demand between domestic coal and imports, it said.

“We would highlight coal (thermal coal in particular) as the most likely to be affected, given China’s large production share and high cost structure,” it said.

“But Chinese protectionism of the domestic coal sector, characterized by high-cost state-owned enterprises, means that the seaborne and China domestic coal markets are gradually decoupling. There is a debate to be had about whether China is really the price-setter.”

China’s policy to adjust the currency based more closely on where the spot market closed the previous day could signal further possible devaluation ahead, the report said.

The yuan is currently managed to move within a 2% band of the daily fix rate.

Source: Platts