Commodities Slumping as China Sees Weaker Yuan: Chart of the Day

Slumping commodity prices may plunge 11 percent further this month as China’s weakening currency slows demand for dollar-priced raw materials from one of the world’s largest consumers, according to TD Securities Inc.

The CHART OF THE DAY shows the Standard & Poor’s Spot Index of 24 raw materials plunged 13 percent last month to 596.2, the biggest drop since 2008, while China’s yuan slipped to 6.3685 per dollar, a 1.4 percent decline that was the most since a peg was ended in July 2005. The GSCI may fall to 530 by end of June while the yuan reaches 6.4 per dollar, said Bart Melek, the head of commodity strategy at TD Securities.

“The weakening Chinese currency is another bite of bad news for commodities,” after the widening debt crisis in Europe, Melek said by telephone from Toronto. “At a time when exports are falling, it’s unlikely that China will want the yuan to appreciate.”

Exports from China to the European Union fell 2.4 percent in April from a year earlier, according to government data. China, the world’s largest consumer of everything from pork and cotton to copper and soybeans, is looking to reduce its reliance on the dollar after accumulating $3.3 trillion of foreign-exchange reserves, the world’s largest stockpile.

The central bank widened the yuan’s trading band against the dollar in April and regulators raised quotas for global funds investing in China’s stocks and bonds to $80 billion from $30 billion. China will promote convertibility of the yuan capital account this year and expand investment channels for its foreign-exchange reserves, Yi Gang, head of the nation’s State Administration of Foreign Exchange, wrote in a June 1 report.

Commodities tumbled on June 1 to the lowest since Oct. 4, extending a three-month slump that was the longest since the recession of 2009. China’s Purchasing Managers’ Index fell to 50.4 in May from 53.3 in April, the nation’s statistics bureau and logistics federation said on June 1, signaling a deepening slowdown for the world’s largest economy behind the U.S.

To contact the reporters on this story: Debarati Roy in New York at droy5@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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