Currency weakness in China has prompted concerns among commodity investors, who fear that import costs for Chinese firms could rise if prolonged weakness in the yuan revives deflationary pressures.
The People’s Bank of China first stepped in to devalue the currency on Tuesday, and yesterday set the mid-point rate for the yuan lower for a second day running.
Richard Perry at ETX Capital said investors were concerned that such a move could dampen demand for raw materials in China, “the world’s top metals consumer” – the Chinese construction sector is the single largest consumer of raw materials globally, using around 25 per cent of the world’s copper.
Research from Liberum shows that construction in China is set to take a turn for the worse, which does not bode well for commodities.
“The demand side for copper looks increasingly weak,” said analyst Richard Knights. He added that while the metal will face a number of supply interruptions in coming months, including a reduction in output from the world’s largest copper mine, Escondida, this weak demand will keep the price down.
Within the poorly performing mining sector yesterday, which fell by 0.9 per cent, Glencore declined the most, down 5.7 per cent. The miner, which reports interim results today, has fallen by 10 per cent over the past week.
Analysts have linked the group’s performance to the copper price, but also say company-specific issues are keeping the stock low.