China goes on $26trn commodity binge

File picture: Nadine Hutton

File picture: Nadine Hutton

Published Jan 4, 2017

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Singapore - Chinese investors traded a record volume of

commodity futures last year as speculators poured in and out of the market on

bets that shortages are looming.

Combined aggregate trading volume on the Shanghai Futures

Exchange, Dalian Commodity Exchange and Zhengzhou Commodity Exchange jumped 27

percent from 2015 levels to 4.1 billion contracts, according to data e-mailed

by the China Futures Association. Turnover across the bourses rose 30 percent

to a record 177.4 trillion yuan ($25.5 trillion), the data show.

Chinese investors, flush with credit and hunting for

returns, piled into commodities futures last year, spurred by bets that the

government’s efforts to cut industrial capacity would lead to shortages of raw

materials. They charged into markets several times in 2016 and bought

everything from iron ore to cotton, driving up prices and stoking fears of a

bubble. Authorities introduced curbs on excessive speculation to quell the

mania.

“With the hope that supply-side reform will successfully

reduce overcapacity in China, especially in the country’s coal and steel

sectors, some commodities futures surged amid a trading frenzy last year,” says

Jia Zheng, trader at Shanghai Minhong Investment Management. “Price volatility

increased too because of low inventories following low prices in the past.”

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Trading volume in Chinese commodities futures has been

heaviest in the world for the seventh consecutive year, Fang Xinghai, Vice

Chairman of the China Securities Regulatory Commission, told an industry

conference last month, according to a transcript posted on the CSRC website.

In terms of turnover, the Chinese bourses probably still

lag behind international rivals. The notional value of the commodity futures

and options traded on CME Group’s exchanges in 2015 was $41.15 trillion,

according to the World Federation of Exchanges.

Chinese exchanges usually double count volumes, open

interest and turnover to reflect the long and short side of a trade, while the

China Futures Association counts only one side of transaction, which is in line

with the standards of most bourses in the world.

BLOOMBERG

 

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