REPORT: A Chinese investor has built up a $US2.8 billion bet that copper prices will rise

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Copper prices have been on a tear this year, especially in recent weeks, with prices jumping to the highest levels in close to five years.

A strengthening global economy, particularly in China, the largest consumer of the metal — along with strong price momentum, a weaker US dollar, and supply constraints — have proven to be a potent mix.

Just look at the front-month copper futures contract on the Shanghai Futures Exchange as evidence as just how bullish the recent price action has been.

SHFE Front-Month Copper Future. Source: Thomson Reuters

However, it’s not just the price action that is looking bullish right now.

One Chinese investor is also feeling optimistic on the prospects for Doctor Copper, building up a mammoth long position in futures on the Shanghai Futures Exchange.

According to reports from Reuters citing an unnamed source, a private coal mining industry investor in China’s Shanxi province has built up a $US2.8 billion long position in copper contracts due to expire in April, May and June next year.

Reuters says the position has been built up over the past year through futures broker Gelin Dahua, with the firm currently holding more than 35% of all open interest in copper contracts for the first half of next year.

For April, May and June contracts, that concentration becomes even greater with Gelin’s positions accounting for at least 60% of the total open interest.

While the identity of the buyer is unknown, if Reuters’ source is correct, it appears there’s new copper “whale” helping to drive the bullish price action seen in recent months.

And, adding to intrigue, it’s a reported to be a coal miner, seemingly diversifying away from the bulks to base commodities.

The only question now is whether it will be joined by other buyers, or, conversely, will it lead to other traders betting against the whale given the vulnerability such a large long position carries should copper prices suddenly come under pressure.

No one knows that answer, but it will be interesting to watch the price action in these contracts in the period ahead.

Trade in Chinese commodity futures has flourished in recent years, aided in part by attempts from policymakers to quash speculative activity in the nation’s stock and housing markets. Tighter capital controls introduced in China earlier this year, limiting investment opportunities abroad, may also be a contributing factor helping to underpin activity levels in futures.

Reuters has more here.

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