Chinese brokerage makes $1bn copper bet

A Chinese brokerage has helped fuel the sharp rally in the price of copper since the end of the Lunar Year Holiday by amassing a $1bn bet in less than a week.

Shanghai Dalu has increased its holding of Chinese copper futures to almost 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 the metal.

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

During Dalu’s buying frenzy, the price of the copper futures contract for delivery in April climbed 13 per cent to a nine-and-a-half-year high above Rmb68,000 a tonne ($10,050). Open interest — the number of copper futures contracts outstanding — also pushed higher.

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

Copper, used in everything from household goods to wind turbines, has risen almost 100 per cent from its pandemic lows in March on the back of a resurgence in industrial activity in China and the prospect of a global post-Covid economic recovery.

Goldman Sachs reckons the copper market could heading for the biggest supply deficit in a decade as production fails to keep pace with demand. This week the benchmark copper price on the London Metal Exchange traded above $9,000 a tonne for the first time since 2011.

However, some analysts are worried copper and other commodities have risen too far, too fast and are due a correction.

Shanghai Dalu could not immediately be reached for comment. It is not clear if the brokerage is holding the position — first reported by Reuters — on behalf of one or a number of clients.

Each lot is worth five tonnes of copper. At current prices its position is worth more than $1bn and in terms of physical metal roughly equivalent to the total level of SHFE copper inventories.

Traders said the buying spree had echoes of 2017 when another Chinese brokerage, Gelin Dahua, built a huge long position in copper for a domestic coal trader

“If we cast our minds back to 2017 when a Chinese coal trader amassed a long position of some 300,000 tonnes (in copper) it did not end well as exiting the position led to a fall from $7,300 to $5,800 over a couple of months,” said Malcolm Freeman, chief executive at brokerage Kingdom Futures.

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

“We have seen a few big whales in the past,” he said. “The latest leg up in copper looks as much to do with speculative buying as from physical demand.”

Analysts also said derivatives hedging by banks had helped to fan the recent run-up in the LME copper price. The benchmark LME copper contract rose 1.7 per cent to $9,410 a tonne on Wednesday.

Additional reporting by Thomas Hale