Risk-hedging Chinese investors push commodities markets to record high trades

SHANGHAI, April 1 (Reuters) - Trading activity on China’s commodities markets is skyrocketing as investors increasingly hedge risks, pushing open interest and trading volumes in the futures markets to record and multi-year highs in March following the coronavirus outbreak and volatile global commodity prices.

The Shanghai Futures Exchange, known for its base metals contracts, saw March open interest volumes at a record 7.3 million while trading volumes reached a four-year high.

The Dalian Commodity Exchange, home to China’s iron ore futures, saw trading volumes rise to a four-year top of 194 million contracts. Open interest on the Zhengzhou Commodity Exchange, which trades agricultural products, hit a record 5.6 million contracts.

“Sellers are trading on the virus’s impact to the economy ... Buyers are trading on stimulus measures that the government will or have been rolling out. It’s a divergence of the market participants, and that’s created a lot of activity,” said Tiger Shi, managing director of broker Bands Financial.

The market was initially “one-sided” at the start of the virus outbreak, but Beijing began encouraging the resumption of economic activity in March while volatility in overseas markets increased as the coronavirus spread globally, said Shi, giving market participants more things to trade on.

“Like us, we got more inquiries and new accounts in March.”

The coronavirus outbreak, which first spread in China in January, disrupted businesses and global supply chains as strict quarantine measures and travel restrictions were enforced. Consumer demand also slumped, increasing the need for businesses to hedge.

“Because of the epidemic, there’s more willingness from businesses and hedge fund managers to hedge their risks,” said Ye Minghua, a vice manager at the commodities department of CCB Futures in Shanghai.

“Trading is more active, not only in crude and chemical products, but also in stock index futures. The plunge in the stock market also drives some money into the commodities futures market.”

The Shanghai exchange said the daily average for its open interest, including volumes from its Shanghai International Energy Exchange unit, reached a historical high in March.

Open interest in its stainless steel, tin, crude oil, bitumen and hot rolled coils futures also reached new highs.

“Since March, impacted by multiple global factors, price fluctuations of some petrochemicals, non-ferrous metals and precious metals products have been big, trading volume and open interest have increased,” a spokesman said.

“It is closely related to the surge in demand from enterprises using futures as a tool to manage risks.”

Open interest in Shanghai’s copper, aluminium and fuel oil futures and Dalian’s soyoil futures also traded near record highs in March.

The Dalian and Zhengzhou exchanges did not respond to a request for comment. (Reporting by Emily Chow and Samuel Shen; Editing by Stephen Coates)