China metals in grip of frenzy as investors bet on global rally

CHINA’S metal markets are in the grip of a speculative frenzy, with traders and deep-pocketed funds betting on global supply tightness and industrial demand to extend a rally in commodities such as copper, nickel and lithium.

Open interest has surged to a record across the six base metals traded in Shanghai, indicating robust sentiment. Heightened geopolitical risk and expectations of a lower interest-rate environment in China and the US are also driving investors to pour capital into raw materials.

The total turnover of the Shanghai Futures Exchange’s six base metals contracts, plus gold and silver futures, reached 37.1 trillion yuan in December, equivalent to more than US$5 trillion. The value was up more than 260 per cent from a year earlier; by trading volume, Dec 29 was the single busiest day for copper in more than a decade.

As well as general supply tightness, metals are finding support from monetary easing by central banks. Lower interest rates typically encourage investors to buy non-yielding assets such as metals. A weaker US dollar is also a tailwind, with investors piling into the so-called debasement trade.

“We have seen significant macro allocation flows into commodities,” said Jia Zheng, head of trading at Shanghai Soochow Jiuying Investment Management, adding that some equity funds are betting commodity futures will rise alongside stocks this year.

Nickel, used in stainless steel and batteries, advanced nearly 6 per cent on the Shanghai Futures Exchange on Wednesday (Jan 7). The most-active aluminium contract closed at its highest since 2021, while copper has shot beyond a milestone 100,000 yuan a tonne, defying some bearish signs in the local market including rising inventories.

Turnover on the Guangzhou Futures Exchange, including lithium, palladium, platinum and silicon futures, was around 5.6 trillion yuan in December. This was more than six times higher than the same month in 2024, although some of the Guangzhou contracts are relatively new.

But questions remain as to whether the scorching rallies have run too far, too fast. As the bull run accelerated in the second half of last year, some of the new capital invested was speculative, said Chi Kai, chief investment officer at Shanghai Cosine Capital Management Partnership.

“This market will test trading skills,” he said. “Easy profits won’t come simply by holding positions – and the risks are increasing.”

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Volatility is becoming an increasing risk, especially in Guangzhou, where a platinum contract launched at the end of November has already traded either limit-up or limit-down on eight occasions.

From mid-December, the Guangzhou bourse also capped new positions and raised fees for lithium carbonate after the contract rallied 35 per cent in the space of around seven weeks. Though open interest has retreated since then, it remains at a historically elevated level. The most-active lithium futures contract rose 4.5 per cent on Wednesday.

With base metals starting the year strongly, copper hit a record on the London Metal Exchange earlier this week and the LMEX Index that tracks the six main metals surged to the highest level since 2022, Chinese investors are likely to stick around. This is reinforced by the presence of macro funds, which tend to hold their positions longer, Shanghai Soochow’s Jia said.

“Looking ahead to the next six months, under the broad backdrop of monetary easing in China and the US, macro capital is unlikely to exit,” she said. BLOOMBERG