News, events and analyses related to global trade and snippets of changing trade matrix during the month of August 2015

China

Yuan devaluation

A race to the bottom  

China’s central bank – People’s Bank of China (PBoC) – stunned global financial markets on August 11, 2015 by fixing the yuan 1.9% lower against the US dollar, which represented the highest-ever one-day fall in the currency. While PBoC, initially, termed the move as ‘one-off’, it repeated the act the following two days, which pushed the yuan to a three-year low against the greenback. The move seems to be a desperate attempt to bolster the country’s falling exports, which fell 8.3% y-o-y in the month of July. It’s worth noting that between mid-2005, when the yuan was allowed to float, and mid-2014, the yuan strengthened about 26.9% before depreciating a bit in the last one year. While PBoC points at the yuan’s appreciation against the US dollar over the last decade and claims it’s overvalued, many claim that it has been deliberately kept undervalued by the Chinese central bank to help the country’s export-oriented economy. Irrespective of where lies the truth, there’s no denying that PBoC’s mid-August move was an unromantic step it just couldn’t avoid.

United Kingdom

Gin exports

Hic…hic…hurray

Forget brooding over a glass of whisky, for, the quintessential English drink – gin – is in high spirits. The British gin is now being served at country’s key overseas embassies across the globe to entice new markets and boost exports. The drink, once derided as “mother’s ruin”, has made a roaring return, with UK government predicting the spirit’s exports to match the value of whisky exports from the country with the help of the government. “This is fertile ground with enormous opportunities. There is absolutely no reason why our gin trade can’t be as successful as whisky, which made £4 billion for our economy last year,” Gov.uk (the UK government website) quoted Environment Secretary Elizabeth Truss. It’s worth noting that UK is the world’s leading exporter of gin with the spirit’s exports hitting almost £400 million in CY2014, up from £288 million in CY2010. The British gin industry is experiencing a revival, boosted by the government’s support to help producers export abroad. Interestingly, India, Brazil and Asia will be key to the spirit’s export growth.

EU-Vietnam

Free Trade Agreement

It’s a deal!

After two and a half years of intense negotiations, European Union (EU) and Vietnam have finally reached an agreement in principle for a free trade deal. The free trade agreement (FTA), which is likely to take effect in late 2017 or early 2018, will eliminate nearly all tariffs on goods traded between the two countries. Vietnam is the second nation after Singapore in the Association of South East Asian Nations (ASEAN) to reach such a deal with EU. It’s worth noting that the trade between the two has increased phenomenally over the past decade to an extent that EU was Vietnam’s second largest trading partner after China in 2014. Last year, EU-Vietnam trade in goods was worth over €28.3 billion, with €22.1 billion in imports from Vietnam into EU, €6.2 billion in exports from the EU to Vietnam. While Vietnam’s exports to EU are dominated by textiles, electronic goods, coffee, rice, telephone sets and seafood, EU’s major exports to Vietnam include aircraft, vehicles, machinery and pharmaceuticals. The negotiating teams will now settle some remaining technical issues and finalise the legal text.

China

Twin blasts at Tianjin Port

In smoky ruins

With 114 people dead, over 700 injured and more than 50 missing, the devastating explosions at a warehouse in Tianjin Port in China on August 12, 2015, was amongst the deadliest industrial accidents in the country. The blasts in the Chinese port city – a key gateway to the world’s second-largest economy – is expected to affect companies active in the vicinity of Tianjin Port, which for the record, is the 10th largest in the world. The two explosions at the warehouse containing large quantities of dangerous chemicals has prompted authorities to suspend imports and exports of dangerous goods. It must be noted that the port is reportedly not accommodating any shipment of hazardous chemicals as experts have confirmed the presence of sodium cyanide, a deadly chemical that emits highly toxic gases if it comes in contact with water. Following the twin blasts, the warehouses at the port remained closed, with all activities related to container loading being suspended. With operations disrupted indefinitely, a large area of the port of Tianjin devastated, more than 8000 ready-to-be-shipped parked vehicles torched in the port, global automakers are exploring other options to redirect shipments from China’s largest auto import hub. The Tianjin port handles 40% of auto imports. Global automakers including Volkswagen, Renault and Toyota will lose millions of dollars due to the incident.  

Crude oil

Prices at a six-year-low

How much lower...?

The Dragon’s decision to devalue its currency has put oil markets under pressure with oil price plunging to its lowest point in six years. Amid global glut and escalating concerns about China’s economy, the price of crude oil sank to its lowest level since March 2009. On August 14, 2015, the US benchmark – West Texas Intermediate (WTI) – fell as low as $41.35 a barrel in New York, its weakest in six and half years. Its previous low for this year stood at $43.08 a barrel on August 11, 2015. The US crude contract has been on the slide ever since reaching $61.43 a barrel on June 10, 2015. Analysts say that the main reasons contributing to the slump include China’s decision to devalue the Yuan, anticipation of Iranian oil hitting the markets and increased crude output in US and Canada among others. The Organization of the Petroleum Exporting Countries (OPEC) indicated that production rose to its highest levels in three years raising worries about the global supply glut. In addition, end to Iran’s oil export ban is expected to worsen an already over-supplied market. With rather subdued demand even from erstwhile high-demand markets, rebound in prices is unlikely any time soon. Only question – how much lower...?  

Russia - The Netherlands

Flower trade

Flowers to flames...

Looks like Russia has found a way to retaliate against the investigation into the MH17 disaster headed by The Netherlands. It is now hitting the Dutch where it hurts the most: flower trade. After burning illegally imported Western food and bulldozing European cheese, Russia has set ablaze Dutch flowers. Shipment of Dutch chrysanthemums, as per Russia’s sanitary watchdog Rosselkhoznadzor, was infected with pests that EU does not recognise as dangerous. According to the hygiene watchdog, over 300 recent shipments of cut flowers contained quarantine organisms, with 183 cases of the infected deliveries grown in The Netherlands. In fact, stoking tensions with the West, Russia has even threatened a ban on cut flower imports from EU. Following the move, flowers from The Netherlands will face closer scrutiny and will only be permitted into Russia after they pass necessary lab tests. Interestingly, The Netherlands is the biggest supplier of flowers to Russia’s $2.5 dollar flower market and as such, will be affected the most. The ‘flower war’, critics say, marks another blow to an already-feeble relationship between Russia and the West.