Skip to content

copper | price of copper | Peru’s economy faces another risk: the devaluation of the Chinese yuan | China’s economy | Chinese | ECONOMY

The current levels of the yuan, which recently broke the mark of seven units per dollar, have not been seen since the first months of the pandemic – see graph -.

The depreciation of this currency, according to Rojas, has a marked relationship with the price of copper (its depreciation lowers prices), the main product that Peru exports.

Yes not a small risk to copper prices with the depreciation of the yuan, an issue that can basically be explained by the lower dynamics observed and expected for the economy. the one the (PBoC) has followed a policy that is contrary to the policy expressed by the one putting the (Fed), increases the devaluation pressure on the currency, more with the environment of risks on growth“, said.

ALSO READ: The dollar would continue to climb because of the Fed’s aggressiveness

about the impact of this evolution on Peru’s economyhe stated that a further decline in the terms of trade (ratio between export and import prices) would reduce the trade balance and the current account through lower exports (more than 60% of these correspond to mining).

Risk to the price of copper and gold

“Since the mining sector is one of the most productive and creates positive linkages, job creation and consequent consumption dynamics would also be affected. Finally, lower tax collection as well as compliance with fiscal rules would put pressure on fiscal deficit and public debt levels, especially in regions such as southern Peru, where mining is the main economic activity,” he said.

So far this year, the yuan has depreciated by around 10%, a similar episode to the one seen between 2018 and 2019. There is still room to continue falling, even to levels close to 7.2 units per the dollar. This could have consequences for Peru’s economy in terms of copper and gold, it was said deputy manager of the Economy Department of Economic Studies the .

“We’ve seen a lot more weakening than these metals (the yuan) right now. If this behavior continues and, in view of this historical combination, it creates a risk for the prices (copper and gold), because it inclines them downwards. It may be a matter of time before a clearer impact is seen. In particular, the corresponds to the terms of trade. If it triggers bearish behavior in copper, the impacts, especially on the tax collection side, could be seen more in 2024”, he expressed.

However, he said the low level of inventories could support the red metal. “They are close to the minimum levels in recent years and this could prevent any downward impact. So far, the floor of US$ 3.25 per pound is being respected (it is not located below).. In view of this new situation where the yuan is weakening, we have to be careful on that technical level”, he pointed out.

ALSO READ: China and the US would help Peru grow by less than 2% in 2023

On the side there should also be an effectbut, according to the economist, the sun would have already depreciated due to local factors, which makes the impact less clear.

“The Peruvian sol depreciated significantly in 2021 and is still at levels around S/3.90. So the correlation that existed at some point between the yuan and the sun did not continue,” he said.

ALSO READ: The price of copper would not return to levels above US$4 per pound in the following years

In this regard, the Central Reserve Bank (BCR), in its latest Inflation Report, showed that the average price of copper decreased in the last two months due to the slowdown in industrial activity in China. He also stated that there were other factors that explain the fall appreciate the dollar, especially against the yuansupported by aggressive increases in interest rates from the sustainment, followed by the European Central Bank and the Bank of England.

key indicators

  • The Fed, at its last meeting in September, increased its monetary policy rate by 75 basis points to a range of 3% to 3.25%, the highest level in 14 years.
  • China’s growth projections in the BCR Inflation Report have been reduced to 3.3% for this year, and to 5% for 2023.
  • The price of copper is trading at levels of US$3.5 per pound, after reaching highs above US$4.
  • The BCR forecasts a contraction in terms of trade of 7.2% in 2022 and 2.4% in 2023.
  • The BCR predicts that mining investment will decrease (-3.7% in 2022 and -16.2% in 2023) due to, among others, less favorable terms of trade.

Start investing your money in cryptocurrencies and get Free Bitcoin when you buy or sell 100$ or more if you register in Coinbase