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COMMODITIES-Oil to copper to corn unhinged by shock China devaluation

* China guides yuan to lowest since Sept 2012 in growth push

* Oil, copper take hits as investors ponder further similar moves (Updates prices, adds U.S (Other OTC: UBGXF – news) . crude settlement)

By Amanda Cooper and Manolo Serapio Jr

LONDON/SINGAPORE, Aug 11 (Reuters) – Oil and copper prices slumped to six-year lows and other commodities tumbled on Tuesday after China devalued the yuan, raising concerns that a persistently weaker currency will choke demand in the world’s top consumer.

Adding to a weeks-long summer selloff that has rattled raw material investors and producers, major commodity markets fell 3 percent or more after China’s central bank made what it called a “one-off depreciation” of nearly 2 percent in the yuan after a run of poor economic data, which sent the currency to a three-year low.

The dollar gave up immediate gains made after the devaluation, which ordinarily would boost dollar-denominated assets, but such is the importance of China to commodities demand that investors overlooked any weakness in the U.S currency.

“When you have the biggest customer for oil and commodities devaluing, then obviously you find your product coming under pressure and that is really how the day has panned out,” said Saxo Bank commodities strategist Ole Hansen.

“We’ve see this kind of competitive devaluations (in other currencies) over the last year, which left the (yuan) relatively over valued and they are reacting to that because their economy cannot sustain a strong currency at this stage,” he said.

China’s decision followed weekend data that showed a steep fall in exports and a slide in producer prices to a near six-year low in July. China’s strong yuan policy, partly designed to foster its use as an international currency, has hurt low-end export manufacturers.

The devaluation could be the first shot of a global currency war.

Benchmark Brent crude oil futures fell 2.4 percent to $ 49.18 a barrel. U.S. prices fell 4 percent to $ 43.08, the lowest settlement price since 2009.

Adding to the pressure on crude was a monthly report from the Organization of the Petroleum Exporting Countries (OPEC) in which it said it expected no extra demand for its crude oil this year despite faster global growth in consumption.


Concern about a slowing in the Chinese economy has been compounded by a rout in its equity market that has wiped 8 percent off the value of blue-chip stocks so far this quarter.

Chinese consumption of oil accounts for more than 10 percent of global demand, while demand for copper equates to between 45 to 50 percent of total consumption for the metal that is the backbone of the electronics industry.

Three-month copper on the London Metal Exchange fell by 3.5 percent to $ 5,125 a tonne, its lowest since 2009.

Chicago corn futures slid 3.3 percent to $ 3.76-1/2 per bushel, while new-crop November soybeans fell 2.3 percent to $ 9.71-1/2 a bushel, with prices also pressured by easing concerns over dry U.S. weather.

The fear among investors is that China’s decision is not a one off, but rather has the longer-term aim of making its exports more competitive.

“The intention is to encourage exports and the government may figure out several solutions for that, not just the exchange rate,” said Wang Li, a consultant at CRU Group in Beijing.

Credit Suisse (Other OTC: CDSSF – news) said “it would take much bigger action to ease the pain among exporters, but in our view, that is not on the high priority list of the decision makers.”

Spot gold, which tends to benefit from heightened investor uncertainty, rose 0.4 percent to $ 1,108 an ounce.

Gold (Other OTC: GDCWF – news) has been under pressure this year from an impending hike in U.S. interest rates and has struggled to hold above $ 1,100 since a July 20 rout that pushed it down to $ 1,077 on July 24, its cheapest since 2010.

But the prospect of an all-out race to the bottom among exporting nations enticed some safe-haven buying.

“Gold is benefiting from fears that this is a new round of ‘currency war’,” Macquarie analyst Matthew Turner said. (Additional reporting by Eric Onstad and Jan Harvey in London, Jonathan Leff in New York; Editing by William Hardy and Meredith Mazzilli)

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