The Business Times

Players see Shanghai as likely competitor for S'pore in Asia

It could take 8-10 years for Chinese centre to be on par with Republic

Published Sun, Jun 8, 2014 · 10:00 PM
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[SINGAPORE] While Singapore is having its time under the sun now, another competitor might emerge in the tussle for the prize of being the Asian metals trading hub in a decade, said industry players.

Singapore itself has displaced Hong Kong, where most Chinese traders used to be based.

"For the region, Singapore has emerged as the predominant commodity trading hub, especially for bulks," said Kamal Naqvi, Credit Suisse global head of metals trading.

While many of the metal traders were based in Hong Kong 10 years ago, there has been a "big migration" since iron ore became a big focus on the Singapore Exchange, he pointed out.

The Swiss bank itself has its iron ore desk based out of Singapore.

The only threat to Singapore is Shanghai, noted Mr Naqvi, where the Chinese government has set up a free trade zone last September.

"If Shanghai opens up more quickly than currently expected, I think that might be an alternative for traders ... (But) personally I think that's a long way off."

China is eager to have more influence in setting the prices of commodities, many of which it is the largest consumer of, and has positioned its futures markets to do so.

The country in October last year launched its first iron ore contract on the Dalian Commodity Exchange (DCE), which allowed domestic steel mills to hedge their main input costs without taking on foreign currency exposure. Foreign players are, however, not allowed to participate on the exchange.

The DCE has seen "very impressive" liquidity for a contract that just began, said Mr Naqvi, adding that the exchange "doesn't appear to have great global ambitions".

On the contrary, "I get the sense that Shanghai has an eye on the global market," he said. "But it's a slow process."

Shanghai last month said that it would allow exchanges for iron ore, metals and energy in its free trade zone, Bloomberg reported.

The Shanghai Clearing House has also said it may soon introduce yuan-denominated iron ore swaps - similar to the dollar-denominated contracts on the SGX.

"Shanghai will definitely have an impact on Singapore," said a Chinese metal trader, though he thinks that it will take the Chinese financial centre eight to 10 more years before it can be on par with Singapore, and even longer for it to supercede the Republic.

For now, Singapore is not resting on its laurels.

To help companies capture the opportunities of rapid urbanisation in Asia that will drive steel usage, "we will work with the industry to put in place infrastructure that helps with price and risk management", said Satvinder Singh, assistant CEO of IE Singapore, the trade promotion agency.

"We will also continue to work on Singapore as a supply chain hub as this helps facilitate the trade of metals and minerals, from extraction and processing, to end-consumption."

Some traders, however, view competition between both cities differently, with the two financial centres serving distinctive purposes.

Alan Kuek, CEO of MRI Trading, noted that Chinese traders have moved from Hong Kong to Singapore to seek an offshore base. "At the end of the day, if they want something offshore, (Singapore) is really offshore," he added.

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