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General Market Commentary
Commentary: The shadowy Chinese fund at the heart of the copper rout
On the London Metal Exchange (LME) copper for three-month delivery touched a one-year low of $6,081 per tonne on Wednesday. The fall from last month’s high of $7,348 has turned brutal.
Slide has become rout as momentum-chasing funds pile in on the short side. LME broker Marex Spectron estimates that as of last Friday the collective speculative short had reached 18 percent of open interest, a level not seen since 2016. And it has almost certainly grown further since.
But it’s a fund of another kind that has grabbed the market’s attention.
Few outside China will have heard of Gelin Dahua Futures Co. Ltd. But the Shanghai copper market has been tracking its massive bull position since July of last year.
Last week it sold out of that position big time, coinciding with a collapse in the Shanghai copper price.
There are echoes of January 2015, when another previously unknown Chinese player, Shanghai Chaos, was linked with a copper price implosion.
History never quite repeats itself, though.
This was no bear attack such as that three years ago, but rather the last Chinese copper bull throwing in the towel.
And who exactly is Gelin Dahua anyway?
Graphic on Shanghai Copper and Gelin’s long position:
THE LAST CHINESE BULL
Gelin slashed its long position on the Shanghai Futures Exchange (ShFE) copper contract from 43,538 lots to 16,022 lots over the second half of last week, according to Thomson Reuters Metals Content and Insight. That’s nearly 140,000 tonnes of copper.
The most active Shanghai contract plunged from 55,450 yuan per tonne to 48,630 yuan over the same three days.
The volume impact was amplified by the awareness of who was selling because so many had been following for so long Gelin’s copper fortunes.
Gelin first placed its bull wager on copper in late July of last year. Its positioning grew in just a couple of days to almost 37,000 lots, according to Wenyu Yao, analyst at the Metals Insight team.
By October 2017, the position had grown to almost 70,000 contracts. It accounted for around 35 percent of total open interest on the front eight months of the contract and had an implied value of almost $3 billion.