Exchange Rate, iPhone, Tungsten Carbide Cutter and Listed Company-2

RMB exchange rate trend

Devaluation of RMB

Let’s look back the exchange rate of RMB. Last week, RMB closed at around 6.85 against the dollar, while it fell sharply on Monday's opening, opening at 6.86 and closing at about 6.87. 

According to the situation of the exchange rate, we can analyze the basic future trend of RMB as follows:

Firstly, if the dollar index exceeds 97 in the future, the RMB exchange rate against the dollars will go up to 6.9. It is even possible for RMB exchange rate to reach 7.0 in the short term. As the BPOC has increased the liquidity, it has increased the currency investment of 1.47 trillion in the past three months. Meanwhile, RMB deposit and loan interest rate decreases appropriately. Therefore, it can be expected that CPI will remain high. We can conclude that the RMB exchange rate against the US dollars will still devalue without the rippling effect of Turkish lira plunge. 

Besides, due to the trade war, China’s exports to the United States are bound to be greatly affected. There is no cause for the appreciation of RMB exchange rate. The controllable devaluation of RMB is in accord with the real value of RMB and the actual demand for export promotion in China.
 

Implication of devaluation

As a worker of tungsten, molybdenum and rare earth industries, we can analyze the implications of RMB devaluation and find out the coping strategy through the comparison between tungsten products and the price of iPhone.

The RMB exchange rate increases by around 8% recently. A lot of experts believe that the devaluation of 10% is reasonable within the controllable range and can reduce the implication of US’s increase of tariff. The method of domestic currency devaluation sounds reasonable to a certain extent. Is that really true? Is the implication the same for all goods if the RMB exchange rate is devalued by 10%? In fact, the implications are different.

Low benefit of exporting an iPhone

According to the reports from mass media, every time we export an iPhone, we can earn a profit of US$5. The rest are basically taken away by imported parts and Apple. In a word, our export volume seems to be large, but in fact we make very little money. Therefore, the OEM of Apple's mobile phone will not benefit a lot from the depreciation of RMB. In addition to the profit of 5 dollars, the dollar that needs to be paid for the import of other materials also offsets the interest of the devaluation of the RMB earned by the export.

That is to say, if the RMB is devalued by 10%, the OEM of Apple’s mobile phone will only earn 10% of the US$5, which is equivalent to 3 RMB. Because many components of iPhone are imported which require the fees paid for technical patents and operating systems of European and American manufacturers.

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