Chinese Commodity Futures Bets Jump to Record Amid Coal Rush

  • Total open interest rises to highest since at least March 2015
  • Zhengzhou thermal coal prices hit record amid supply concern

The number of outstanding bets across Chinese commodity futures markets jumped to the highest on record as winter supply concerns prompted a surge in coal contracts.

Aggregate daily open interest on the three largest commodities exchanges rose to almost 30 million contracts this week, the highest level since at least March 2015, according to bourse data compiled by Bloomberg. That compares with a daily average of about 26.5 million this year. Thermal coal prices reached an all-time high on the Zhengzhou Commodity Exchange with outstanding bets holding near unprecedented levels.

While open interest has skyrocketed, trading volume has shrunk since a speculative frenzy in March and April when short-term retail investors charged into everything from iron ore to cotton, driving up prices and stoking fears of a bubble. The authorities brought an end to the mania by introducing curbs on excessive speculation. This time around, the surge in holdings accompanied by subdued volumes indicates longer-term investors are entering the market, according to Everbright Futures Co.

“More long-term, bullish investors are betting on further price increase in the Chinese futures market right now with aggressive bets on assets prices, led by thermal coal and coking coal,” said Xu Maili, a Shanghai-based analyst with the broker.

Aggregate daily trading volume averaged about 30 million contracts across the Shanghai Futures Exchange, Dalian Commodity Exchange and Zhengzhou Commodity Exchange this week, bourse data compiled by Bloomberg show. That’s lower than the daily average of 34.6 million this year and a shadow of April’s peak of 80.6 million. Chinese exchanges double count trading volume and turnover.

Output Squeeze

Power-station coal futures traded in Zhengzhou advanced 2.9 percent to 643.4 yuan ($95) a metric ton at the close on Oct. 25 and climbed as much as 2.9 percent further on Wednesday before retreating. Open interest held near a record 447,000 lots reached on Oct. 24. That’s even after the Zhengzhou Commodity Exchange increased trading fees for the futures to 6 yuan a lot from 4 yuan, effective from the night trading session on Monday, according to statement on its website.

Coal prices have more than doubled this year amid efforts by the government to cut industrial overcapacity by ordering miners to curb output and ease a glut. Now, as winter looms, prices are extending gains amid speculation that efforts to stabilize the market may be too late and that producers won’t be able to boost domestic output fast enough to meet peak demand for the fuel.

China’s National Development and Reform Commission on Tuesday urged coal miners to meet temporary increased production limits as soon as possible to boost supplies and stabilize prices, two people with knowledge of the matter said. The top economic planner told producers at a meeting in Beijing that it doesn’t want prices to rise further, according to the people, who asked not to be identified because the information isn’t public.

The jump in coal is also boosting its fellow bulk commodity iron ore. Benchmark spot prices topped $60 a ton for the first time since August after futures in China went limit-up as coal’s rally pulled steel and other raw materials in the supply chain higher. Aluminum in Shanghai jumped to its highest level in almost two years.

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