The Exchange Rate Broke 7, Who Is Happy In The Fertilizer Market? Who Is Sad?

- Aug 26, 2019-

For the RMB exchange rate, it is an important day. On this day, both offshore and onshore RMB against the US dollar “break 7”, setting the biggest one-day drop since the exchange reform on August 11, 2015, which is also the new low in 11 years.

"7" has always been regarded as an important psychological barrier for the renminbi against the US dollar. It has been broken many times but it has not been broken. Why did it break this time? The explanation of the central bank governor Yi Gang is: "The recent international economic situation and Trade frictions have seen some new situations, and market expectations have also undergone some changes. As a result, many currencies have depreciated against the US dollar since August, and the RMB exchange rate has also been affected to some extent. This fluctuation is market driven and decided."

The RMB exchange rate broke the “7”, and the impact on the fertilizer market was more on imports and exports. China is the world's largest exporter of fertilizers and a major importer of fertilizers. The annual export volume of fertilizers is more than 20 million tons, and the import volume is about 10 million tons. The exchange rate of RMB will have a certain impact on the import and export of fertilizers.

On the whole, the depreciation of the renminbi is beneficial to the export of fertilizers. Take the urea export price of 280 US dollars / ton as an example. In the past, the exchange rate was 6.85, which was equivalent to RMB 1,918 yuan. Now the depreciation is 7.05, which is equivalent to RMB 1974. The same is the export of 280 US dollars / ton, and now can increase the income of 1974-1918 = 56 yuan more than in the past. This is actually equivalent to a reduction in the cost of enterprise exports by 56 yuan / ton, low cost, more competitive in the international market, and more conducive to exports.

But importing fertilizers is bad because it will increase import costs. Take potassium chloride as an example. Last year's big contract was $290/ton. If this year's big contract is also $290/ton, at the exchange rate of 6.85, the import cost is: $290/ton*6.85=1986.5 yuan, when the exchange rate becomes At 7.05, the import cost was: $290/ton*7.05=2044.5 yuan, and the cost increased by 2044.5-1986.5=58 yuan.

The overall situation of China's chemical fertilizer import and export is that the export volume is greater than the import volume, and the export volume is about twice the import volume. Therefore, the RMB exchange rate against the US dollar is “7”, which is better for the fertilizer market as a whole. However, this is assuming that the price of international fertilizers is unchanged. In fact, there may be a fear of a sharp increase in China's fertilizer exports after the depreciation of the renminbi, which in turn will hit the international market. Other international manufacturers have taken the initiative to lower the price and prevent China from exporting more. Therefore, after the exchange rate has depreciated, it remains to be seen how many exports can be added.

In addition, the magnitude of the RMB depreciation in the market outlook is not expected to be too large. In the statement after breaking "7", Yi Gang stressed that China adheres to the market-determined exchange rate system, does not engage in competitive devaluation, does not use the exchange rate for competitive purposes, and does not use the exchange rate as a tool to deal with external disturbances such as trade disputes. . Wang Han, chief economist of Industrial Securities, also believes that from the fundamental point of view, China's economic trend has no obvious pressure on the RMB exchange rate. China's current 3.1 trillion US dollars of foreign reserves is sufficient to deal with short-term capital outflows, and the RMB has not depreciated significantly. Judging from the current situation, the depreciation of the people's market will not have much impact on the fertilizer market, but it deserves close attention.