Which is more tasty? China’s apple futures craze, or mainland’s stock market

A recent spike in apple futures prices and trading volumes on the Zhengzhou Commodity Exchange was triggered by a recent cold snap that damaged China’s main apple producing regions, says analysts 

PUBLISHED : Wednesday, 16 May, 2018, 5:02pm
UPDATED : Wednesday, 16 May, 2018, 11:13pm

An apple frenzy is gripping China, as the country’s recently launched futures for the fruit hit a fresh record high on Wednesday, attracting nearly US$60 billion of fund inflows, close to the combined turnover of US$63 billion for the Shanghai and Shenzhen stock markets.

To curb trading risks, the Zhengzhou Commodity Exchange announced Wednesday it will raise commission fees for investors to close their positions in apple futures, only a few days after it imposed higher margin requirements.

The apple futures for October delivery, the dominant contract on China’s Zhengzhou Commodity Exchange, jumped as much as 5 per cent to 9,235 yuan per metric tonne on Wednesday, the highest on record since China launched the world’s first apple futures in December. 

Turnover of the contract reached a whopping 363 billion yuan (US$57 billion), just shy of the combined turnover of 402 billion yuan (US$63 billion) for Shanghai and Shenzhen markets on Wednesday.

On Tuesday, the contract’s daily turnover was 253 billion yuan, much higher than the Shanghai stock market’s 163 billion yuan. It also surpassed the Shenzhen market’s 251 billion yuan.

Since the beginning of April, the price for the October delivery contract has soared around 40 per cent. 

“A trigger [for the price surge] is the recent cold snap in northern China, which has fuelled expectations of a sharp supply cut this year,” said Hou Zhifang, a futures analyst for Founder CIFCO Futures.

But the whopping turnover figures for the futures also suggest speculative trading is “very active”, she added.

“Speculative traders have pushed the prices higher, especially on the distant month contract, as we don’t know for sure how much production will be reduced for apples in the upcoming season.”

Gold loses shine as investment demand drops rapidly in China

The October delivery contract reflects prices of apples in the upcoming season.

The Zhengzhou Commodity Exchange also warned investors Wednesday against risks in “big price fluctuations”. 

It announced it will double the liquidation cost on seven contracts for apple futures to 3 yuan per contract, starting Thursday.

Last week, the exchange said it would raise the margin requirement for July delivery to 10 per cent from the previous 7 per cent, effective on May 16.

A cold wave swept through northern China in early April, spanning from the northwestern province of Shaanxi, to the central Henan, and Shandong on the east coast. 

China’s yuan oil futures are a long time coming. What’s next?

These are China’s main producing regions of the Fuji apple, which is the major apple type China produces and the underlying product of the fruit’s futures on the Zhengzhou exchange.

Apple orchards in Gansu and Shaanxi, the country’s largest apple producing regions, have been hit hard, with many trees in bloom damaged by the chill, according to recent statistics from Sublime China Information (SCI), a commodity information provider.

The cold wave may reduce the country’s apple production this year by around 30 per cent, according to SCI.

China is the world’s largest apple producer and consumer, with production and consumption making up about half of the global total last year, according to a recent research report by Industrial Securities.