Yuan is the new driving force behind the base metals. Following China's announcement that yuan will be freed from the dollar peg, global base metals market has surged in a rapid way.
Reason for this is that base metals will become cheaper for Chinese buyers following yuan's flexibility and this will increase the country's appetite for metals.
Analysts are watching how far and how fast the yuan is rising, and how that might affect prices, exports and the broader economy.
Copper and zinc were the most prominent gainers. Zinc may have benefited despite oversupply concerns, as its prices on both the London and Shanghai bourses plummeted in recent months to a point where market speculation was suggesting that some smelter output cuts are underway in China.
Copper, a bellwether commodity in assessing the effects of the revaluation because of its relatively scarce supply, settled 2.6% higher at 52,710 yuan ($7,720) a metric ton this week.
As the world's largest buyer of dollar-denominated raw materials, a revaluation should favor China. Based on last year's import levels, an appreciation of about 3%, to 6.60 yuan per dollar, would have saved China roughly $2.8 billion on its iron ore and copper import bills.
Same is the case with Indian markets also as the Chinese appetite will help Indian producers also.
The BSE Metal index underperformed the market over the past one month till 18 June 2010, falling 4.77% as compared to the Sensex's return of 4.12%. It had also underperformed the market in the past one quarter, declining 16.91% as compared to the Sensex's 0.29% rise.
China's pledge to make its currency more flexible lifted copper and other base metals in Shanghai market, on hopes increased purchasing power will boost demand in the world's third-largest economy.