SteelOrbis Shanghai
The appreciation of the RMB accelerated in October. On October 18, 2007, the US Federal Reserve lowered the interest rate by 0.5 percent, which directly resulted in the acceleration of RMB appreciation.
On September 28, $1 was equal to RMB 7.5108. However, the exchange rate changed to 1: 7.4162 on November 9 with a rise of 1.26 percent, breaking the record for the eighth time this year. Especially since November, the appreciation of the RMB has accumulated speed, and in only ten days 0.71 percent of growth has been seen. The value of the RMB against the USD has increased by 12.39 percent since the reform of the exchange rate was announced in 2005.
On the other hand, the RMB has lost value against the euro. When the exchange rate reform of the RMB was implemented on July 21, 2005, the euro/RMB exchange rate was 1:10.0641. However, the rate had changed to 1: 10.8988 by November 9, 2007 with a depreciation of 8.29 percent for the RMB. Therefore, the EU has recently requested a further acceleration of RMB appreciation.
Due to the rapid increase in the foreign exchange reserve in China and the problem of excessive liquidity, the Chinese government has changed its attitude regarding the appreciation of RMB. Recently, the National Development and Reform Commission (NDRC) reported that a one-time appreciation of 10 percent in the RMB should be performed in order to solve the liquidity issue.
China is a big buyer of fuel and primary products in the international market. The rapid price increase in such products is an important factor for inflation in China. Thus, to speed up the appreciation of the RMB will be conducive to lowering inflation.
Regardless of the NDRC's program, the value of the RMB against other currencies may be expected to increase greatly in the near future.
As to steel industry, the accelerating appreciation of the RMB will lower the cost of iron ores to some extent. However, it will obviously be harmful to China's steel exports. As per the current export price, a one cent increase in the RMB exchange rate will cause a $1 rise in the export cost of carbon steel per metric ton. Of course, after several adjustments to the export tariff policy for steel products, China's exports have dropped sharply, and a continuous decline is expected in the near future. As a result, the dependence of China's steel industry on exports has also declined. Overall, the appreciation of the RMB will be positive for China's steel industry.