Metals News

Chinese brokerage builds bullish $1 bln copper bet in four days

Feb 23 (Reuters) - Shanghai Dalu Futures, a brokerage on the Shanghai Futures Exchange, has amassed a $1 billion long position in copper contracts within just four days, bourse data showed.

The move comes as copper prices roughly doubled from levels seen less than a year ago thanks to a resurgence in global industrial activity and a slew of stimulus measures that look set to increase consumption, while supply remains tight.

In the four trading days after the Lunar New Year holiday, the little-known brokerage boosted its copper long positions by more than 800% to emerge as the top long position holder of the May, June and July ShFE copper contracts, visible ShFE data showed.

In doing so, it added 19,774 copper lots to its copper position in the April-July contracts, equivalent to 6.7 billion yuan ($1.04 billion) based on the closing price of ShFE’s most-active April contract on Tuesday.

The brokerage provides investment consulting and a channel for clients to trade on futures exchange.

On Feb. 10, before the holiday started, Dalu Futures held only 2,503 lots in the May contract, compared with 8,503 lots on Feb. 23.

Dalu Futures’ public relations department said they were not aware of the situation.

“Recently, copper prices have surged and Dalu Futures raised its long positions,” the brokerage’s analyst Li Xun told Reuters, adding that low inventories, large institutional investor interest and a cyclical industrial upturn were the three main factors driving its purchases.

Dalu Futures’ customers are relatively balanced in three main parts: industrial customers, including downstream fabricators and consumers, institutional investors and speculators, Li said.

The brokerage’s four-day buying binge coincided with a 14% surge in the price of ShFE April copper futures to a 9-1/2-year high of 68,790 yuan per tonne on Tuesday.

The brokerage said in a note on Sunday that Shanghai copper prices could range between 60,000-70,000 yuan a tonne this week.

In tandem with its copper play, Dalu has also – over the same period – amassed the second biggest long position in the ShFE May aluminium contract.

The brokerage’s controlling shareholder is Zhongshan Securities Co Ltd, a unit of Shenzhen-listed Guangdong Golden Dragon Development.

Dalu’s aggressive accumulation has caught the attention of other market participants.

“The total volume is not small. If they suddenly leave (the market), it will impact prices,” said a Shanghai-based metal trader, referring to Dalu Futures’ positioning.

Latest data showed that since Feb. 18, Dalu Futures added long positions worth 98,870 tonnes of copper, nearing the total level of ShFE inventories of 112,788 tonnes as of Feb. 19.

While there is a risk of a price drop if Dalu Futures reverses course, many other brokerages share their upbeat outlook.

“We expect copper prices will continue to be strong, and raise our 2021 expectation for the upper range of LME copper to $10,000 per tonne from $9,000 per tonne, for Shanghai copper to 71,000 yuan per tonne,” said analyst Gong Ming at Jinrui Futures, the number three long position holder in ShFE copper.

The inflow of speculative funds could increase price volatility, she added.

LME’s benchmark three-month copper was trading at $9,064 a tonne at 1028 GMT.

“There is momentum building from different perspectives, whether it’s inflation or carbon neutral emissions or electric vehicles, so this is becoming a hot topic and good story for copper,” said Tiger Shi, managing director at broker BANDS Financial.

($1 = 6.4603 Chinese yuan)

Reporting by Mai Nguyen in Hanoi, Min Zhang in Beijing, Emily Chow in Shanghai, and Tom Daly; Editing by Jacqueline Wong