RMB devaluation increases competition in metals markets

China, the world's largest producer of steel and aluminum, has sharply increased its metal exports this year in response to overcapacity and a slowdown in the country's economy.

Now, following the devaluation of the yuan, markets are gearing up for possible more aggressive exports in the price-sensitive metals industry. How much more market share Chinese manufacturers are able to capture will depend on whether the yuan falls further. The fact is that Chinese exports of metals have already grown by more than 25 percent this year.

According to analysts, the fall in the national currency further enhances the competitiveness of Chinese manufacturers, whose exports have already raised concerns among politicians in the United States, Europe and India, forcing them to take punitive trade measures.

Global commodity prices fell sharply after the People's Bank of China dropped the yuan exchange rate early last week. Traders and analysts say this was a reflection of the problems resulting from the slowdown in the Chinese economy, and China is a huge consumer of raw materials with high yuan import costs.

Weakened by the devaluation, crude oil prices on the New York Mercantile Exchange fell to more than a six-year low of $ 41.35 a barrel last week. Copper and aluminum futures on the London Metal Exchange also dipped to six-year lows of $ 5,062 and $ 1,553.50 a tonne, respectively, down 19 percent and 15 percent in 2015, respectively.

After the Central Bank of China authorized a 3% drop in the yuan against the dollar, it said that the currency should stabilize and that there was no reason to weaken further. However, global steel prices may decline as a result of China's actions, according to Hong Kong analyst Citi Research.

Economists say the restructuring of China's exchange rate is in part aimed at stimulating the country's exports. The metallurgical industry is one of the sectors where China's exports are already sizzling. Its aluminum exports in the first seven months of 2015 rose 28.3 percent to 2.87 million tonnes, while exports of steel products rose 26.6 percent to 62.13 million tonnes.