Risk hedging Chinese investors push commodity markets to register high transactions

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SHANGHAI, April 1 (Reuters) – Trading activity in China’s commodities markets soars as investors increasingly hedge risk, pushing open interest rates and trading volumes in the markets eventually to record, multi-year highs in March following the coronavirus epidemic and volatility in global commodity prices.

The Shanghai Futures Exchange, known for its base metals contracts, posted open interest volumes in March at a record 7.3 million, while transaction volumes hit a four-year high.

Dalian’s commodities exchange, home to Chinese iron ore futures, saw its trading volumes peak at 194 million contracts over four years. Open interest in the Zhengzhou Commodity Exchange, which trades agricultural commodities, reached a record 5.6 million contracts.

“Sellers are negotiating on the impact of the virus on the economy… Buyers are negotiating on the stimulus measures the government will or has put in place. It’s a divergence of market players, and it’s created a lot of activity, ”said Tiger Shi, managing director of broker Bands Financial.

The market was initially “one-sided” at the start of the virus outbreak, but Beijing began to encourage an upturn in economic activity in March as volatility in foreign markets increased as the coronavirus spread across the country. globally, Shi said, giving market participants more to trade. to.

“Like us, we received more inquiries and new accounts in March.”

The coronavirus outbreak, which first spread to China in January, has disrupted businesses and global supply chains as strict quarantine measures and travel restrictions were enforced. Consumer demand has also fallen, increasing the need for businesses to hedge.

“Due to the epidemic, companies and hedge fund managers are more willing to hedge their risks,” said Ye Minghua, vice director of the commodities department of CCB Futures in Shanghai.

“Trading is more active, not only in raw materials and chemicals, but also in stock index futures. The fall in the stock market also injects money into the commodity futures market. “

The Shanghai Stock Exchange said its daily average open interest, including volumes from its Shanghai International Energy Exchange unit, hit an all-time high in March.

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

“Since March, impacted by multiple global factors, price fluctuations for some petrochemicals, non-ferrous metals and precious metals have been significant, trade volume and open interest have increased,” said a spokesperson. word.

“This is closely linked to the increase in demand from companies that use futures as a risk management tool. “

Open interest in Shanghai copper, aluminum and fuel oil futures and Dalian soybean oil futures also traded at near record highs in March.

The Dalian and Zhengzhou exchanges did not respond to a request for comment. (Reporting by Emily Chow and Samuel Shen; Editing by Stephen Coates)


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