strengthening of the Chinese currency could lead to a near-term
resurgence of copper imported under financing deals, market
Copper premiums were trading in
the range of $35 to $60 per tonne Tuesday, mostly unchanged
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
Chinas 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 years 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