China’s Zhongcai Futures Makes 757 Billion Won Windfall Betting on Silver Crash, Now Buying Copper Futures

[Financial News]


The Financial Times (FT) reported on the 4th (local time) that Zhongcai Futures is now sitting on a pile of money after profiting from the recent collapse in silver prices.
By betting on a decline in silver, Zhongcai is estimated to have booked unrealized gains of 3.6 billion yuan (about 757.2 billion won) since the morning of the 30th of last month.
Zhongcai traces its roots back 30 years to Chairman Bian Ximing’s PVC pipe manufacturing company. Chairman Bian later transformed Zhongcai into a futures brokerage.
Known in financial circles as a “hidden master,” he scored a huge win by betting alone on a fall in silver prices while almost everyone else in mainland China was wagering on a rise.
As of the 2nd, Zhongcai holds short positions in silver futures equivalent to about 484 tons on the Shanghai Futures Exchange (SHFE). At current prices, that position is worth more than 1.5 billion dollars (about 2.19 trillion won).
A futures short position is a contract to sell an asset at a pre-agreed price at a specific point in the future. It is different from a put option, which is the right to profit from a price drop by buying at a lower level. With a put option, if the price rises, the holder can simply let the option expire. With a futures short, however, the trader cannot walk away even if prices soar, and in theory the losses can grow without limit.
The 484 tons of silver that Zhongcai has sold short is an enormous volume, roughly equal to a full month of production by Mexico, the world’s largest silver producer.
Even a modest price increase could have triggered severe margin calls and potentially pushed the firm into bankruptcy.
Because Zhongcai struck it rich with what amounts to a near-gambling bet at a time when Chinese authorities are trying to curb market speculation, there is growing concern that speculative fever in China’s markets could spread further.
After suffering heavy losses on silver futures shorts in November last year, Zhongcai rebuilt its short positions last month and this time succeeded. Its net profit from trading silver futures on SHFE so far this year alone has reached 2.3 billion yuan (about 484 billion won).
Chairman Bian describes investing as a game not of prediction but of expectation. In his view, opportunity lies within risk, and traps lie within opportunity.
After his big success with silver, he is now focusing on buying copper futures.
This reflects his expectation that prices of copper, a key industrial raw material, will rise amid the transition to green energy and ongoing geopolitical volatility.

dympna@fnnews.com Song Kyung-jae Reporter