May 13, 2021

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Chinese brokerage places $ 1 billion bet on copper

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A Chinese brokerage house helped fuel the sharp rise in the price of copper since the end of the Lunar Year holiday by amassing a $ 1 billion bet in less than a week.

Shanghai Dalu has increased its holdings of Chinese copper futures to nearly 24,000 lots from 2,500 since Thursday, according to the latest data from the Shanghai Futures Exchange. The new figure is equivalent to 120,000 tonnes of metal.

Dalu also built a $ 200 million copper position on the Shanghai International Energy Exchange, a subsidiary of the futures exchange.

During Dalu’s buying spree, the price of the copper futures contract for April delivery climbed 13 percent to a nine-and-a-half-year high above Rmb 68,000 per tonne ($ 10,050). Open interest – the number of copper futures contracts outstanding – also pushed up.

“The dominant long position in SHFE continues to gain attention,” said Michael Cuoco, head of metal fund sales at StoneX Financial, in a note to clients.

Copper, used in everything from housewares to wind turbines, has risen nearly 100% from its pandemic low in March on the back of a recovery of industrial activity in China and the prospect of a global economic recovery after Covid.

Goldman Sachs estimates that the copper market could be heading for the biggest supply shortfall in a decade as production cannot keep pace with demand. This week, the benchmark copper price on the London Metal Exchange traded above $ 9,000 per tonne for the first time since 2011.

However, some analysts are concerned that copper and other commodities have risen too far, too fast, and need a correction.

Shanghai Dalu could not be reached immediately for comment. It is not clear whether the brokerage holds the position – first reported by Reuters – on behalf of one or more clients.

Each lot is worth five tons of copper. At current prices, its position is worth over $ 1 billion and in terms of physical metal it is just below the total level of SHFE stocks.

Traders said the buying frenzy echoed in 2017 when another Chinese broker, Gelin Dahua, built a huge long position in copper for a domestic coal trader

“Looking back to 2017, when a Chinese coal trader amassed a long position of around 300,000 tonnes (in copper), it did not end well, as the exit from the position led to a downside. from $ 7,300 to $ 5,800 in a few months, ”said Malcolm Freeman, managing director of brokerage firm Kingdom Futures.

Ole Hansen, head of commodities strategy at Saxo Bank, said the position Dalu amassed raised questions about the extent to which speculative buying pushed prices up.

“We’ve seen a few big whales in the past,” he says. “The latest breakthrough in the copper sector looks as much like speculative buying as it is physical demand.”

Analysts also said bank hedging of derivatives helped fuel the recent surge in copper prices on the LME. The benchmark LME copper contract was down 0.3 percent to $ 9,224 a tonne on Wednesday.

Additional reporting by Thomas Hale



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