China Fund News Chenxi
As the short-selling war in the copper futures market intensifies, all institutions have their own joys and worries.
Recently, COMEX copper prices have risen sharply. According to market sources, IXM, a trading company under CMOC, holds a large number of short positions and "suffered heavy losses due to forced positions".
In this regard, late at night on May 16, CMOC issued a clarification announcement saying that its wholly-owned subsidiary, IXM, is a world-class metal trading platform and does not engage in simple speculative transactions. IXM is engaged in cross-market, inter-period, cross-variety and other hedging and arbitrage trading strategies, and the risk is completely controllable.
Separately, the benchmark COMEX copper futures contract retreated on Thursday, hovering near its all-time peak, while the forward contract rose. According to foreign media reports, due to the deep trapping of shorts on the benchmark contract, they had to move to the forward contract. Traders said the bears had decided to postpone their unwinding until after June, hoping that copper prices would fall or that producers would be able to sell their output for delivery for some time to come.
Let's see the details -
Its trading company was "forced to short"? Late-night statement by a billionaire
COMEX copper futures have been on a hot rally recently, and the bears have been losing ground one after another. Recently, foreign media reported that IXM, a Swiss commodity trader under CMOC, bought physical copper to counter a large number of short positions.
Subsequently, news such as "IXM suffered heavy losses due to short avoidance" and "CMOC was targeted by Wall Street" came out one after another, and CMOC's stock price fell for two consecutive days. A number of investors asked CMOC questions on the SSE interactive platform, asking for clarification on whether the situation was true and whether the company had sufficient spot for delivery.
On the afternoon of May 16, CMOC announced that it had paid attention to the relevant media reports on its trading company, Exsen. CMOC said that it is a common practice in the industry for international trading companies to buy in one market and sell in another market at the same time.
At present, the COMEX market in the United States has a high premium for copper products, and as a global commodity trading company, it is advantageous to conduct physical trading in this market. This hedging trading strategy is different from pure speculation, and the risk is completely controllable. Exsen has a strict risk control mechanism, and the operation is within the framework.
Late at night on May 16, CMOC issued another clarification announcement, saying that its wholly-owned subsidiary, IXM, is a world-class metals trading platform, as an important global commodity trader, sells the company's products globally, including 100% of the company's self-produced copper products, and IXM also trades a large number of third-party metals and concentrate products. IXM is 100% hedged to the metals trade to reduce price risk in its business activities.
In accordance with the needs of its global physical trade, IXM uses derivatives contracts on major metal exchanges around the world to strictly manage commodity price risk, which is not directly related to the realized value of the company's self-produced copper and will not affect the sales price of the company's self-produced copper. IXM does not engage in purely speculative trading. IXM is engaged in cross-market, inter-period, cross-variety and other hedging and arbitrage trading strategies, and the risk is completely controllable.
CMOC said that up to now, the company's production and operation are normal, and the overall liquidity is at the best level in history. The company is positive and optimistic about the future copper price, and has not carried out strategic hedging business for self-produced copper products since the beginning of 2024. Record copper prices in 2024 and the company's record copper production will also provide strong support for the results.
Although two clarification statements were issued, CMOC's share price has not improved. At the opening of trading on May 17, CMOC's share price dived after a brief recovery, with a total market value of 8.52 yuan per share and a total market value of 184 billion yuan.
It is worth mentioning that in addition to CMOC, companies such as Western Mining have also been questioned by investors about whether there is cross-market arbitrage and other behaviors.
COMEX copper futures hovered at a high level, and the bears decided to postpone the liquidation until after June
Let's review the situation of the "beating shorts" in the COMEX copper futures market -
Recently, COMEX copper futures have been forced to position the July contract. On May 15, the COMEX copper futures 2407 contract touched $5.128/lb, or about $11,300/mt, breaking through the high since March 2022. The contract also held a record premium above the COMEX September contract, a situation known in the commodity market as a spot contango, a sign of a short squeeze.
In the short market, foreign media quoted people familiar with the matter as reporting that commodity trading giant Trafigura and China's China CMOC's IXM are trying to buy physical copper to settle a large number of short positions they hold on the CME exchange in the United States.
Trafigura and IXM have large short positions in the COMEX copper market, meaning they are betting on lower copper prices or hedging their own price exposure. But unexpectedly, the COMEX copper price suddenly soared from Tuesday, resulting in these short positions being seriously "shorted".
At the same time, the premium of New York copper futures to the London Metal Exchange (LME) price has soared to an unprecedented level of more than $1,200 per tonne, which has also shaken global markets. According to foreign media, Colin Hamilton, managing director of commodity research at BMO Capital Markets, said, "The spread between the New York Mercantile Exchange and the London Mercantile Exchange is unprecedented at more than $1,000 per tonne. "The expiration of contracts led to a squeeze on short positions and exacerbated the trend.
In addition to CMOC, Trafigura, the other party involved in the "short squeeze" news, admitted that it would ship more physical copper to the United States. Trafigura is one of the largest suppliers of physical copper in North America and will ship more copper to COMEX given the premium in this market. Trafigura has asked some copper producers to reroute their May and June shipments to the U.S., but it is difficult to change destinations at short notice.
In terms of the market, the COMEX copper futures benchmark contract fell on May 16, but still hovered near the historical peak; Forward contracts rose as traders moved their near-term contract positions to the forward month.
Market sources said buyers continued to expect further gains in copper prices as shorts on the benchmark contract were deeply trapped and had to move to forward contracts. Traders said the bears had decided to postpone their unwinding until after June, hoping that copper prices would fall or that producers would be able to sell their output for delivery for some time to come. As copper prices continue to climb, bears are facing increasing delivery pressure, and the exhibition has become an effective means for them to cope with this pressure.
In an effort to maintain market stability, CME has raised margin requirements for copper futures trading, which will take effect after the close of trading on Thursday. CME Clearing said in a notice that the exchange raised the direct margin requirement for copper futures by $500 to $5,000 per lot.
Soochow Futures Research Report believes that from a macro point of view, the US CPI fell as scheduled in April, the retail data unexpectedly weakened, and the market expectation of interest rate cuts heated up, causing the dollar to fall and push up copper prices. Fundamentally, the tight supply of copper concentrate on the supply side has not been effectively alleviated, and the scale of production reduction in May is expected to be further expanded, while downstream demand is still resilient, and the fundamentals are still supported by passive replenishment, and copper prices are easy to rise and difficult to fall.
Yangtze River Nonferrous Metals believes that copper prices are climbing strongly, driven by multiple factors. Specifically, from the perspective of the domestic market, the acceptance of high copper prices by downstream consumers has gradually increased, and the overall trend of on-demand procurement has been shown. At the same time, air conditioning sales remained strong, and the production and sales data of new energy vehicles also continued to grow, providing a positive market environment for copper prices to rise.
Globally, continued focus and investment in the green energy sector has further strengthened the market's confidence in rising copper prices. Copper, an important raw material for the green energy industry, is expected to increase as the industry grows, providing a long-term upward momentum for copper prices. On the whole, the current copper price rise is full of momentum, and it is expected to continue to rise in the short term.
Editor: Xiao Mo
Review: Muyu