Investors Pressure Commodity Markets to Record High Trade

Trading activity in China’s commodity markets is skyrocketing. Investors increasingly shield themselves from risk, pushing open interest and trading volumes in the futures markets to a record and multi-year levels in March.

The Shanghai Futures Exchange (SHFE), known for its base metal contracts, observed an open interest volume in March at 7.3 million. Meanwhile, trading volumes peaked at four-year highs.

The Dalian Commodity Exchange (DCE), home to China’s iron ore futures, saw trading volumes grow to a four-year high of 194 million contracts. Open interest in the Zhengzhou Commodity Exchange, which trades agricultural products, hit a record of 5.6 million contracts.

Tiger Shi, managing director of the Bands Financial broker, said that sellers are selling on the impact of the virus on the economy. Buyers are purchasing stimulus measures that the government will implement or will have implemented. It is a divergence of market participants, and that has created a lot of activity.

Trading is More Active in the Chinese Commodity Market

The market was initially “one-sided” at the beginning of the virus outbreak. Still, Beijing began encouraging a resumption of economic activity in March. Meanwhile, volatility in foreign markets increased as the coronavirus spread globally, giving market participants more things to trade. Shi said they received more inquiries and new accounts in March.

The coronavirus outbreak, which first spread in China in January, disrupted companies and global supply chains. This is due to the stringent quarantine measures and travel restrictions applied. Consumer demand also plummeted, increasing the need for companies to cover themselves.

Ye Minghua, vice manager of CCB Futures’ raw materials department in Shanghai, said that due to the epidemic, companies and hedge fund managers are more willing to hedge their risks. Trading is more dynamic, not only in crude and chemical products but also in stock index futures. The crash in the stock market also brings some money to the commodity futures market.

The Shanghai exchange said the daily average of its open interest, including volumes from its Shanghai International Energy Exchange unit, reached a record high in March.

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Open interest in its stainless steel, tin, crude oil, bitumen, and hot-rolled coil futures also hit new highs.

A spokesman stated that since March, price fluctuations in some petrochemicals, non-ferrous metals, and precious metals have been significant. Multiple global factors have impacted them. Trade volume and open interest have increased.

It is closely related to increased demand from companies that use futures as a tool to manage risks.

Open interest in Shanghai copper, aluminum and oil futures, and Dalian soybean oil futures were also trading near record highs in March.

Dalian and Zhengzhou exchanges did not reply to a request for comment.