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Appreciation of yuan could spur copper financing deals

Keywords: Tags  copper, copper premium, copper financing deals, yuan appreciation, Shanghai Metals Market Information & Technology

SHANGHAI — The strengthening of the Chinese currency could lead to a near-term resurgence of copper imported under financing deals, market participants said.

Copper premiums were trading in the range of $35 to $60 per tonne Tuesday, mostly unchanged since October.

But the rise of the Chinese yuan to a record high early this week has encouraged some importers to again consider copper-backed financing trades that take profit from exchange-rate moves.

"The sharp appreciation these days has revived enthusiasm for copper financing deals because those dealmakers make certain profit from currency exchanges, too," a Shanghai-based trader said.

Under such schemes, merchants usually pay back letters of credit used to import copper via a yuan-for-dollar exchange after selling the metal in the domestic market.

China’s two reductions in interest rates and its currency depreciation earlier this year had expanded losses made by financing deals from July, according to market participants.

But the yuan has bounced back after falling to this year’s low of 6.3967 per dollar on July 25. The spot yuan climbed Monday to a historic high of 6.2345 to the dollar.

Some merchants are planning to go to their bankers to apply for letter of credit issuance again as "appreciations in the yuan are set to spur financing deals," an analyst at Shanghai Metals Market Information & Technology Co. Ltd. said.

A version of this article was first published by AMM sister publication Metal Bulletin.

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