Goldman Sachs Group Inc said metals investors in China are concerned that the government might sharply weaken the nation’s currency in a decision that could trigger large swings in prices.
There are “fears in the market over a sharp devaluation in China,” analysts Jeffrey Currie, Fu Yubin and Max Layton wrote in a report on Wednesday.
The note summarized views from Chinese metals traders, producers and investors, but did not give the bank’s assessment of prospects for a devaluation. A weaker yuan makes raw materials more expensive for China to import, while making Chinese products more competitive overseas.
A devaluation “would present headwinds for metals prices and lead to market speculation about large moves of prices short term,” the analysts wrote, summarizing comments from those with whom it talked.
The bank canvassed views from investors at a local conference in the middle of last month as well as more recently.
“Any further yuan devaluation could throw a spanner in the works,” Australia & New Zealand Banking Group Ltd commodities strategist Daniel Hynes said.
Should markets continue to steady after the initial “Brexit” shock, “it is pretty much: ‘Move along, there is nothing to see here,’” Hynes said.
Policymakers in China are trying to guide the currency lower versus those of its trading partners as the economy slows, while simultaneously damping expectations of faster depreciation.
The yuan has lost 2.9 percent against a basket of peers this quarter, while the offshore yuan fell against the US dollar.
“There appeared to be consensus that a bull metals market is unlikely in the medium term, given China’s transition from old economy to new economy,” the analysts wrote.
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