BEIJING, Jun 20, 2010 (Dow Jones Commodities News via Comtex) --
China commodity futures opened mostly with mild gains Monday on the central bank's weekend statement allowing for gradual yuan appreciation as traders tempered optimism with circumspection that the policy could hurt recovering exports amid already-large commodity import volumes.
Steel futures on the Shanghai Futures Exchange were the notable exception, with the benchmark reinforcing bar and steel wire contracts each falling 0.1% as the export-oriented sector looked particularly vulnerable to more expensive prices.
Shanghai copper led the modest gains among base metals, with the benchmark September contract up 0.6% at CNY51,670 a metric ton at 0230 GMT, underlining the red metal's relatively tight supply fundamentals and China's status as the world's largest buyer of dollar-denominated raw materials.
"From a long-term perspective, the ultimate effect of the yuan policy will be judged by its effect on the export sector, and how it affects the country's gross domestic output," said Liu Jun, analyst with Yong An Futures.
Record levels of copper imports and a still relatively high stock level of 139,332 tons in exchange warehouses put the crimp on traders' appetites, he said.
Steel futures Monday showed the potentially deleterious impact on the export sector as physical price margins, already threatened by the government's moves to nip property market speculation, faced further erosion from a stronger yuan.
Steel product exports had more than doubled on year in the first five months of the year, but now traders and analysts are worried that the healthy recovery clip may be undone by yuan appreciation.
"Buyers have been worrying about the risk of a surge in Chinese exports dampening global market fundamentals after a nearly four-fold increase in Chinese steel exports in May," U.S.-based Steel Market Intelligence said in a weekend note.
For the most part, commodity markets treated the weekend news as something already digested.
"The news actually isn't all that unexpected, and trade these past couple of months has been stabilizing, with exports recovering," Gao Yanrong, agriculture commodity analyst with Dalu Futures, said Sunday. "We are already buying a lot of imports, and there's a question whether a stronger yuan will be beneficial in spurring more imports."
Agriculture futures on the Dalian Commodity Exchange opened just 0.6%-1.3% higher, with the benchmark January soybean contract up 0.9% at CNY3,864/ton at 0230 GMT.
Still, by mathematics alone, the yuan appreciation would save Chinese importers a substantial sum. Based on last year's numbers, an appreciation of about 3%, to CNY6.6 per dollar, would have saved China roughly $2.8 billion on its iron ore and copper import bills.
A stronger yuan in the past underpinned longer-term price growth. Global commodity prices rallied steadily for more than a year after China raised its exchange rate in 2005.
But for now, analysts said savings could be offset by price increases independent of the currency, and worries that the general macroeconomic environment may not sustain another large commodity growth spurt.