China’s Metals in Grip of Frenzy as Investors Bet on Rally

Core Insights - China's metal markets are experiencing a speculative frenzy, with trading values in Shanghai increasing by over 260% year-on-year, driven by investments in commodities such as copper, nickel, and lithium [1][2]. Trading Activity - Open interest in the six base metals traded in Shanghai has reached a record high, indicating strong investor sentiment amid expectations of global supply tightness and resilient industrial demand [2]. - The total turnover for the six base metals contracts, along with gold and silver futures, hit 37.1 trillion yuan (over $5 trillion) in December, marking a significant increase in trading activity [3]. - December 29 was noted as the busiest trading day for copper in over a decade, reflecting heightened market activity [3]. Market Drivers - The surge in metal prices is supported by monetary easing from central banks, which typically encourages investment in non-yielding assets like metals [4]. - A weaker dollar is also contributing positively to the market, as investors engage in the so-called debasement trade [4]. - Significant macro allocation flows into commodities have been observed, with some equity funds betting on the rise of commodity futures alongside stock prices [5]. Price Movements - Nickel prices increased nearly 6% on the Shanghai Futures Exchange, while aluminum contracts reached their highest levels since 2021. Copper prices surpassed 100,000 yuan per ton, despite some bearish indicators such as rising inventories [6]. Other Exchanges - The Guangzhou Futures Exchange, which includes contracts for lithium, palladium, platinum, and silicon, recorded a turnover of approximately 5.6 trillion yuan in December, more than six times higher than the same month in 2024 [7]. Market Concerns - There are concerns regarding whether the rapid price increases have been excessive, with some new capital being speculative in nature. The market is expected to test trading skills, as easy profits may not be achievable simply by holding positions [8].