BEIJING/MELBOURNE (Reuters) - A private coal mining industry investor in Shanxi province is the main actor behind a dramatic increase in bullish bets in Chinese copper futures, a person familiar with the matter said, driving a futures brokerage to a nearly $3 billion position that has fueled a surge in prices to 4-1/2-year highs.
The position has been built up over the past year through futures broker Gelin Dahua Futures Co Ltd, the person said, declining to be identified because he was not authorized to talk to media. Gelin Dahua is headquartered in Beijing and owned by securities firm Shanxi Securities Co.
Gelin Dahua holds more than 35 percent of the open interest in copper contracts for the first half of 2018 on the Shanghai Futures Exchange (SHFE), bourse data shows, worth $2.8 billion according to Reuters’ calculations based on contract data.
At the close of business on Monday, it was holding just under 70,000 contracts spread out across the futures contracts for delivery in the first half of 2018 [0#SCF:], the data showed. For April, May and June futures, Gelin’s positions accounted for at least 60 percent of the total open interest in those contracts.
The person with knowledge of the matter would not disclose the identity of the coal miner, the size of its position out of the broker’s total, nor the strategy behind it. It wasn’t clear whether other investors from the coal industry are also involved in the copper bets.
Shanxi Securities and Gelin Dahua declined to comment.
Set up in 1993, Gelin Dahua has 27 branches across the country and offers commodities futures broking in China’s so-called “black” commodities: coking coal, coal, copper and steel, according to its website. Shenzhen-listed Shanxi Securities has a market capitalization of about $4.4 billion.
The broker’s large holding has attracted attention across the global base metals market over the past week, with traders citing it as helping fuel the recent price rally.
Over the past month, Shanghai copper prices have jumped more than 10 percent, driving gains on the London Metal Exchange. China is the world’s largest copper producer and consumer.
The move is the first major copper play since Chinese funds roiled global markets in 2014 and 2015 after piling up massive short positions, pushing prices to multi-year lows.
The emergence of a private coal miner with the funds to make such a splash in copper highlights the dramatic change in miners’ fortunes over the past two years, after government-enforced mining cuts spurred a historic jump in coal prices.
Listed coal miners turned in the best profits out of all Chinese commodity companies in the second quarter.
It also suggests investors are branching out, with Beijing trying to prevent overheating in China’s property market and introducing curbs in equity markets over the past two years.
The investment in copper, rather than thermal coal, also highlights the two markets’ diverging fortunes as Beijing aims to wean China off its favorite fuel as part of its push to boost clean energy use and clean the country’s toxic air.
Still, the large-scale buying has come as concerns grow about weaker copper demand during the seasonally slower winter months and as China enforces unprecedented steps to curb pollution.
“We are coming into a soft season in demand. It’s not really the right time to add to your position,” said a senior source at a China-based brokerage. “But when copper goes down to $6,500, you need to have a lot of money in margin calls.”
Reporting by Meng Meng in BEIJING, Melanie Burton in MELBOURNE, Ruby Lian in SHANGHAI and BEIJING newsroom; Writing by Josephine Mason; Editing by Gavin Maguire, Kenneth Maxwell and Joseph Radford