Feature: DCE Coking Coal in the Eye of the Storm: Hangzhou’s Turbulent Ride Through the "Anti-Involution" Rally

Executive Summary:

In late July, coking coal surged in a sentiment-driven rally, hitting five consecutive limit-ups before collapsing after DCE imposed position limits. Hangzhou’s top funds and trading houses—known for their strong industrial grounding—suffered steep losses, with some NAVs down 3–6%. Traders misjudged the power of policy rumors and were caught between rising futures and lagging physical inventory. Despite weak downstream demand and rising inventories, speculative narratives overpowered fundamentals. The episode highlights how, in today’s leveraged and rumor-sensitive market, deep research and sound positioning can still be punished by momentum and volatility. Even the best were forced into losses they didn’t expect.

1. Backdrop: A Sentiment-Fueled Frenzy

• The late-July “anti-involution” wave ignited a sharp speculative rally across commodities.

• Coking coal became the poster child of this frenzy:

  • Five consecutive limit-ups — a rare event even for seasoned traders.

  • Driven by policy rumors, regulatory shifts, and extreme weather news from Inner Mongolia.

  • Futures open interest on Aug 6 reached 863,000 lots (~50Mt).

  • July turnover hit 3 trillion RMB, twice the 2021 peak when physical prices were at all-time highs.

Quote: “What took Japan 30 years to exit deflation, China’s commodity market did in 30 days.”

2. Reality Check: DCE’s Clampdown Sparks Reversal

• On July 25, DCE imposed position limits on coking coal, triggering:

  • Immediate limit-down in coking coal.

  • Chain-reaction selloffs in correlated contracts like industrial silicon, glass, and lithium.

• The abrupt U-turn exposed overleveraged positions and the fragility of the rally.

  
  

3. Hangzhou's Bloodbath: Trade Houses and Funds Take Heavy Losses

• Hangzhou is home to China’s most influential futures asset managers and trading houses.

  • Examples: Sibang (Relian), Jing’an, Qiantang Yongli, Runzhou, Beizhi, Suijiu.

• Many were long or delta-exposed when coking coal reversed — either via outright or basis trades.

  • Sibang reportedly had to inject billions in cash to meet margin calls.

  • Some funds reported 3–6% NAV drawdowns within days.

  • Even veteran bulls like “Yu” — who floated nearly 300 million RMB profit — had to cut positions after the collapse, ending with 72 million.

    
    

4. The Structural Trap: When Fundamentals Lose to Sentiment

• Hangzhou's trading culture is rooted in deep industrial research and cycle timing.

  • Many funds saw weak downstream demand and rising coke & steel inventories.

  • Professional analysis noted that:

    • Inventory drawdowns at mines were offset by builds in coke plants and mills.

    • Finished steel was still accumulating.

    • Real demand was weak — rally driven by speculation, not fundamentals.

• Yet in a market hijacked by rumors and “small essays,” fundamentals were ignored:

  • Rumors of lithium mine closures sparked limit-ups — later debunked.

  • Safety inspection headlines and rumored rule changes (like revised delivery specs) led to extreme price swings.

Quote: “The more sensitive you are to real fundamentals, the more likely you were hurt in this rally.”

5. Basis Traders Caught Between Cash and Futures

• Many Hangzhou physical players ran long physical / short futures (positive carry).

  • When futures soared beyond reasonable premiums, they couldn’t:

    • Scale up physical inventories fast enough.

    • Raise margin capital quickly enough.

  • Result: Forced liquidation of futures shorts, leading to massive mark-to-market losses.

Example: A Hangzhou-based trading house reportedly had to make 10 finance department runs per day just to meet DCE margin calls.

6. Hangzhou’s Core Institutions: The Yongan Legacy

• The city is home to Yongan Futures, known as the "Whampoa Military Academy" of China’s futures world.

  • Alumni include key personnel at many CTAs.

  • Emphasis on “framework + database + network” led to deep institutional talent.

• But the very strength of this network also led to herding:

  • Traders shared similar views and reacted similarly.

  • Herded into coking coal longs, many flipped long just before the crash.

    
    

7. Conclusion: Coking Coal’s Rally Turned Margin Bloodbath

• The coking coal surge was the climax of the anti-involution rally — but also its first casualty.

• For Hangzhou's elite — who usually win by knowing the industrial truth — the pain was especially deep:

  • They bet against irrational exuberance too early.

  • And switched long too late.

• The resulting damage was both financial and psychological.

Summary quote:“This was meant to keep commodities out of the ICU — but we all ended up in the KTV instead.”