Impacts of Russia-Ukraine Conflict on Tungsten Market & Price (V)

IMPACTS OF RUSSIA-UKRAINE CONFLICT ON TUNGSTEN MARKET & PRICE

PART V OF X

RMB Exchange Rate VS Price of Tungsten Under The Background of the Russia-Ukraine Conflict

The conflict between Russia and Ukraine has had a great impact on the world economy, which has not yet fully recovered due to the epidemic. The sanctions imposed by Europe and the United States on Russia's energy exports, overseas assets and swift settlement system, and the counter-measures taken by Russia to strengthen the ruble payment function and partially restore the gold standard have not only brought more variables to the conflict between Russia and Ukraine, but also brought many challenges to China's economy.

One of them is the RMB exchange rate, interest rate Many aspects such as internationalization have had different effects, and will also have a great impact on the cost, price and market competitiveness of China's tungsten products. All these require China's tungsten products enterprises to recognize the situation, face it actively and deal with it prudently. In the fifth part of this paper, the author hopes to provide some thinking direction and inspiration for friends in China's tungsten products industry through the analysis of various aspects of RMB under the background of the conflict between Russia and Ukraine.

1. RMB Exchange Rate

RMB has been the legal tender of the people's Republic of China for 72 years and is issued and managed by the people's Bank of China; On November 30, 2015, it was included in the IMF special drawing right (SDR) currency basket by the International Monetary Fund, with a weight of 10.92%. The prices of all goods and services in China are priced in RMB, while the export prices are priced in the local currency of RMB and / or converted into US dollars. In 2021, China's total GDP was valued at 114 trillion yuan in RMB. According to the average exchange rate of RMB in 2021 (6.441), the total GDP was equivalent to US $17.7 trillion (at that time, the total GDP of the United States last year was US $23.04 trillion, about 148 trillion yuan).

The exchange rate is the ratio of one currency to another. It is divided into direct price method and indirect price method. The common direct price method of RMB against the US dollar in China is currently basically maintained between 6.3-6.4. We usually refer to the RMB exchange rate, which generally refers to the exchange rate of RMB against the US dollar. For foreign trade enterprises, the exchange rate generally refers to the purchase price of the bank. In fact, it is the actual income priced by the people obtained by US dollar settlement to the people's Bank of China after we export a US dollar tungsten product (rather than the selling price at which we import tungsten concentrate to buy US dollars from the bank).

At present, China's RMB exchange rate is basically determined by the relationship between market supply and demand. However, in the case of US dollar market imbalance or market failure, China's central bank will also intervene appropriately according to China's import and export situation and balance of payments relationship, so as to prevent us dollar surplus when the export surplus increases, resulting in the relative depreciation of US dollar, and vice versa.

There are many factors affecting the change of exchange rate. Generally speaking, a country's economic strength is the fundamental reason to determine the long-term development trend of exchange rate. The main factors affecting the currency exchange rate include balance of payments, national income, inflation rate, money supply, fiscal balance of payments, interest rate, exchange rate policies of various countries and their ability and strength to intervene in the market, speculation and market psychological expectation, political and sudden factors and many other factors. In daily economic life, the influence of a country's currency exchange rate is often the result of the comprehensive action of many factors.

RMB is the price unit of domestic commodity circulation, and US dollar is the international market price of China's goods and services. The ratio between the two is the exchange rate of RMB. Although the Bretton Woods monetary system centered on the US dollar was ended by the Nixon Administration on August 15, 1971, the multilateral economic system with the US dollar as the main content of the international monetary system, including foreign exchange liberalization, capital liberalization and trade liberalization, has become the core content of the capitalist group, and the US dollar remains the main international reserve and settlement currency. China's international trade payments and reserves are dominated by US dollars. Therefore, it can be said that the US dollar has a strong pricing power over China's import and export commodities. In other words, the monetary policy of the Federal Reserve has a certain influence on China's commodity pricing, and its policy will directly and indirectly affect the price and competitiveness of China's export commodities.

China's tungsten resources have absolute advantages in the world. The production and supply of various tungsten products account for about 80% of the total global supply. In recent 10 years, the average annual export of China's tungsten products is more than 20000 tons, and the average export volume accounts for about 20% of China's total output of tungsten products. In the process of international trade, China's tungsten products are mainly priced in US dollars. The equivalent RMB price at the time of foreign exchange settlement, that is, the RMB exchange rate has a decisive impact on the export price of China's tungsten products and the profit of exported tungsten products, and has a negative correlation with the RMB exchange rate. However, the export price of tungsten products has a direct positive correlation with the market price of domestic tungsten products, that is, when China has advantages in tungsten products resources, Domestic costs and prices will also be reflected in export prices.

According to the statistics of ctia.com.cn, the average price of domestic wolframite concentrate (65% WO3) in 2021 was 102,500 RMB/MT, an increase of 20.95% over the same period in 2020; The average price of apt was 154,400 RMB/MT, an increase of 21.06% over the same period in 2020; In 2021, the total control index of tungsten concentrate (65% WO3) mining in China was 108,000 mts, an increase of 3,000 tons over the same period in 2020, with a year-on-year increase of 2.90%. Among them, the main mining index was 80,820 mts, with a year-on-year increase of 3.42%, and the comprehensive utilization index was 27,180 mts, with a year-on-year increase of 1.23%. In 2021, China's tungsten consumption totaled 65,000 mts, a year-on-year increase of 13%, of which the original tungsten consumption was 55,000 mts, a year-on-year increase of 13%; The consumption of waste tungsten was 10,000 mts, with a year-on-year increase of 11%. With the recovery of positive growth of the global economy, the demand for overseas tungsten resumed growth, the demand for overseas orders increased, and the export situation improved significantly year-on-year. In 2021, China exported 24,000 mts of tungsten products (excluding cemented carbide), with a year-on-year increase of 55.16%.

It can be seen from the above figure that the exchange rate of RMB against the US dollar has not changed much in the past ten years and has basically remained within a small fluctuation range. However, in the past two years, due to the weakness of the US dollar, China's political and economic stability and the increasing strength of the RMB, the RMB is almost close to the lowest value of 6.30 in recent ten years in 2022, which will have a great impact on China's import and export trade, it also poses a great challenge to the monetary policy and regulation ability of China's financial sector.

Of course, since the euro and Sterling are also the main circulating and reserve currencies in the world, in actual international trade, we will also consider the currency commonly used in the customer's region, the rising and falling trend of the currency at that time, the convenience of collection, and the exchange difference between different foreign currencies and RMB, Considering many factors such as different collection time regulations such as spot or forward, USD or other currencies acceptable to both parties shall be used as the contract price unit and settlement currency. At present, CTIA group basically uses euro in Europe and US dollars in other regions. Of course, CTIA also has CIPS accounts and will use RMB for settlement according to customer needs.

After the outbreak of the Russian Ukrainian conflict, the international foreign exchange market and bond market fluctuated violently. This incident affected not only the economies and currencies of Russia and Ukraine, both parties to the conflict, but also the sanctioned Russian ruble. It also had a great impact on the currencies of European and American countries affected by the shortage of energy supply. As the world's second-largest economy and Russia's neighbors, it is an important partner with long-term energy cooperation agreements, it is difficult for RMB to stay out, and its exchange rate trend will have a great impact on China's Tungsten product price and tungsten product industry.

In recent years, China's Tungsten exports have fluctuated greatly, showing an increasing trend from 2016 to 2018 and a decline from 2019 to 2020. According to the data, China's Tungsten exports reached 24051 tons in 2021, with a year-on-year increase of 63.6%, and the export amount was US $802 million. If we calculate at the average exchange rate of 6.441 in 2021, the export income of tungsten products in the whole industry will be 5.2 billion yuan, while if we calculate at the exchange rate of 6.3 in mid March 2022, the net income of the whole industry will be reduced by more than 110 million yuan. Therefore, it is easier for us to observe the great impact of RMB exchange rate appreciation on tungsten products industry from the perspective of the whole industry; Taking individuals as an example, it is easier to see the impact of the Federal Reserve's dollar policy on each enterprise of tungsten products in China.

By joining us in such a virtual transaction, we can see the direct impact of RMB exchange rate on tungsten products industry. In the middle of January 2022, ctiag group and the customer agreed on the sales contract of nano ammonium metatungstate (AMT), with the price of CNF Rotterdam delivery of $50 per kilogram and USD50 00 / kg (CNF Rotterdam). At the time of signing the contract, the RMB exchange rate was 6.45, and the cost-benefit calculation of China tungsten Zhizao was 5 yuan per kilogram. However, China Tungsten online recovered the payment after online delivery in mid March. At this time, the RMB exchange rate was 5.30, and the profit of China Tungsten online was 0. In fact, after excluding labor, storage and transportation, insurance, capital interest and other expenses, China Tungsten online lost money, this is the living impact of RMB exchange rate and US dollar pricing power on our tungsten products enterprises.

2. Money Supply and Inflation

From the perspective of money supply, money supply is the primary factor determining money value and money purchasing power. If the domestic money supply decreases, the local currency is more valuable because it is scarce; On the contrary, if the money supply increases, the excess money will be expressed in the form of inflation, the price of domestic goods will rise and the purchasing power will decline, which will promote the large import of relatively cheap foreign goods and the foreign exchange rate will rise. In the past two years, with the continuous implementation of QE in the United States, the balance sheet of the Federal Reserve has rapidly increased from $4 trillion to today's $8.9 trillion. There is a serious oversupply of money, and the money supply is too large, forming a flood of water and affecting the world. Therefore, in the same period, the RMB has continued to appreciate relative to the U.S. dollar, and has now reached a level of about 6.3, which first reflects the effect of the moderately tight policy of the RMB.

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Therefore, under the current different monetary issuance policies and inflation conditions between China and the United States, we can expect that the RMB will basically maintain a high price in the future and appreciate against the US dollar for a long time, which is certainly conducive to China's import of energy, grain and raw materials. However, for China's large export products such as tungsten products, their export income will decline relatively and their export profits will decrease simultaneously, In this way, there will be a short-term situation of reduced export volume or reduced passive market demand due to the increase of export prices.

3. Interest Rate and Money Price

4. Sudden factors of Russia Ukraine conflict

5. Conflict Russia-Ukraine and RMB Local CurrencySettlement

6. Oil RMB Future

6.1 RMB oil futures in the previous period

6.2 China Iran long term oil cooperation agreement

6.3. China Saudi Arabia Petroleum Cooperation

7. Internationalization of RMB

8. Challenges & Opportunities of the Russia-Ukraine cConflict

8.1 RMB collection risk

8.2 After Russia was expelled from the SWIFT system

8.3 Digitalization of RMB

9. The Fluctuation of RMB Exchange Rate & the Challenge of Tungsten Export

According to the current analysis, combined with the global status of China's tungsten products industry and the current situation of Russia's tungsten resources, the challenges brought by the conflict between Russia and Ukraine to China's tungsten products industry are not limited to the fluctuation of RMB, exchange rate and interest rate, nor to the safety and risk of RMB payment pre settlement amount. We infer that under the international background of increasing sanctions against Russia in Europe and the United States after the conflict between Russia and Ukraine, the risk of tungsten products industry may exceed the profit and loss risk, we may have to face the problem of whether we can export, where we can export, or whether we can import and where we can import!

In view of the sensitivity of tungsten, molybdenum and rare earth products, RMB and gold involve financial policies, NRA and other accounts involve foreign exchange control, etc., it is inconvenient for us to discuss more about the risks and opportunities of tungsten products industry here, but we welcome interested friends to contact us for more discussion and mutual learning!

(The Part V is completed, and the Part VI to X of the full text are to be continued)

SUMMARY

Based on the experience of tungsten products market in the past decades and the current situation of the conflict between Russia and Ukraine, the author believes that the price of tungsten products will continue to rise in 2022, but the main factor is not traditional market factors; Therefore, in the first part, we focus on the conflict between Russia and Ukraine and the military use and importance of tungsten products. In the second part, we focus on the global resource distribution of tungsten products, especially the overview of tungsten resources in Russia and the relationship between China's tungsten products industry and Russia. In the third and fourth parts, we analyze the factors of the sharp rise in the prices of energy, bulk metals and grain and the cost pressure of China's tungsten market under the background of the conflict between Russia and Ukraine, in this part, we focus on the analysis of the RMB exchange rate, interest rate and the risks and opportunities as a means of payment. In the follow-up, we will discuss the feasibility and risks of China's tungsten products futures; Of course, related to Russia, we will also briefly analyze the suspected fraud such as the so-called sky-high price Russian tungsten gold bar and tungsten cube as a token from time to time in recent decades.

Read/download the full report:

'Impacts of Russia-Ukraine Conflict on Tungsten Market & Price (V)'

'Impacts of Russia-Ukraine Conflict on Tungsten Market & Price (IV-2)'

'Impacts of Russia-Ukraine Conflict on Tungsten Market & Price (IV-1)'

'Impacts of Russia-Ukraine Conflict on Tungsten Market & Price (III)'

'Impacts of Russia-Ukraine Conflict on Tungsten Market & Price (II)'

'Impacts of Russia-Ukraine Conflict on Tungsten Market & Price (I)'

 

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