Iron ore price rally safe from yuan devaluation

Yuan devaluation won't impact iron ore priceThe price of iron ore was flat on Wednesday with the market for the steelmaking raw material expected to experience little fallout from China's surprise currency devaluation.

The benchmark 62% Fe import price including freight and insurance at the Chinese port of Tianjin lost $0.10 or 0.2% at $55.80 a tonne, according to data provided by The SteelIndex. That's up more than 26% from record lows hit July 8. It was too soon to tell if the huge blast that rocked the city south-east of Beijing would have any impact on the industry.

People's Bank of China jolted markets yesterday  after lowering the renminbi’s daily reference rate against the US dollar by 1.8%, the largest such adjustment in its history. The currency continued its slide on Wednesday and is seen as a defensive move amid an economic slowdown in the world's second largest economy and top iron ore consumer.

As the devaluation makes commodities priced in USD more expensive it is feared that it could further damp demand from China. But a report by Platts News quotes a research note from Macquarie, an investment bank and commodities trader, as saying that the devaluation of the yuan is unlikely to impact the 1.3 billion tonne seaborne trade:

The move may prompt some higher-cost mines to produce for longer, but the industry has already largely consolidated, analysts said.

"A large proportion of China's high cost mines have already been shut and hence China's production share is small and the cost curve is not nearly as efficient as it used to be," the report said.

Iron ore prices have also been boosted by customs data out this week that showed imports by China climbed to the highest level this year with inbound cargoes reaching 86.1 million tonnes in July up 15% from the June total and compared to 82.5 million tonnes a year ago. Imports year to date now total 539 million tonnes, little changed from the first seven months of 2014.

Iron ore prices have also held up well despite a contraction in China's steel industry following recent record lows for benchmark Shanghai rebar futures. China’s National Bureau of Statistics announced that crude steel output declined to 65.9 million tonnes  last month, down 4.6% year-on-year. Daily crude steel output averaged 2.12 million tonnes in July, which is 8% lower than June’s average.
Yesterday, the Chinese government's top steel-industry forecaster   disputed world number two mining company Rio Tinto's bullish internal forecasts that China will hit 1 billion tonnes of crude steel output by 2030 reports the Sydney Morning Herald

"You are seeing demand decline gradually, so it simply cannot reach that 1 billion-tonne level which Rio is talking about," Mr Li [Xinchuang, president of the China Metallurgical Industry Planning Association] said. "I do not understand why Rio is so confident about reaching that level because we are not seeing that level of optimism here on the ground in China."