Singapore push to become metals hub bears fruit

[SINGAPORE] Some 150 people gathered at the Fullerton Bay Hotel rooftop for drinks on a Wednesday night recently to meet fellow members of the mining industry in Singapore.

The crowd was so large that the organisers, the Singapore Mining Club, had to turn away another 50 who were interested because of space constraints, a reflection of how much the Singapore metals sector has grown in breadth and depth from an insignificant presence five years ago.

"When we were here five years back, Geneva was the trading hub," said Dhaval Shah, UIL Singapore head of non-ferrous metals. "All the trading houses have now moved their base to Singapore because this is where they see the growth coming in the future."

UIL is part of the UD Group, one of the top 10 metal trading groups in India that first set up an office here in 2009. Last month, it consolidated ownership of its trading offices into a holding company in Singapore and appointed former head of Singapore Mercantile Exchange Thomas McMahon as its CEO.

"We feel that over the next years we'll see most of the growth coming from Singapore," said Mr Shah, explaining the move.

Like them, many traders have moved to Singapore, boosting the number of metals and mineral players here from "a handful" five years ago to about 140 now, according to International Enterprise Singapore, the government agency tasked with developing the commodity sector. Revenue generated by the sector has more than doubled since 2010 to US$100 billion last year.

As the cocktail reception to launch the Singapore Mining Club showed, companies in the metals sector have moved beyond merely trading, an area that Singapore has already burnished a reputation, to other functions.

"The metals companies are starting to harness Singapore's business infrastructure by developing functions such as risk management, finance and treasury, and shipping here," said IE Singapore's assistant chief executive officer, Satvinder Singh.

Last year, the sector spent about $3 billion on logistics and financial services, among others, in Singapore, more than double that of 2010.

"Mining companies are also looking to improve productivity and innovation in mining services, particularly in areas such as water and power solutions as well as R&D," Mr Singh added.

The growth of the metals sector here has dovetailed with the rise of Singapore as a pricing centre for iron ore, a major ingredient in steel-making.

As traditional annual contracts between miners and steel mills broke down in 2009, Singapore Exchange (SGX) gained a first-mover advantage by launching iron-ore swaps the same year.

SGX now clears more than 90 per cent of all iron-ore derivatives globally.

With the top three iron ore miners Vale, Rio Tinto and BHP Billiton - who together hold 70 per cent of seaborne iron-ore supply - moving their marketing and sales arms to Singapore in the past few years, the Republic has attracted other iron ore players.

"If you want to trade in iron ore, you must be in Singapore," Yang Chen, Singapore director of Shagang International - the largest privately owned steel manufacturer in China which has been here since 2008 - told The Business Times in Mandarin.

And with iron ore often one of many products in the portfolio of metal trading houses, other traders and banks have also moved their metal trading desks to Singapore.

"It's a case of having teams in one place," said Jared Baker, Asia head of commodities sales at Credit Suisse. "People don't like to have it all split up, there're compliance and supervisory issues. You benefit from having iron ore here, and if the metals business is to stay together they will move to Singapore."

Trafigura, one of the world's largest traders of energy products and metals, moved its headquarters from Switzerland to Singapore in 2012, as did Mitsubishi Corp with its global metals headquarters that same year.

Traders cite Singapore's proximity to consuming countries - in particular China, the easy availability of trade financing, and the developed insurance and freight markets as reasons for moving here.

The presence of brokers and market makers, such as Triland Metals, GFI Group, ICAP and Marex Spectron, have also enhanced the ecosystem.

"The government here is one of the few that understands the meaning of 'ecosystem' and methodically recruits all these companies to come in here and set up shop," said Loi Pok Yen, CEO of CWT Limited which bought over metals trading house MRI Trading in 2011.

"Once you do that, the whole sector itself takes on a life of its own. And guys like us will start to grow, because we're sitting in an area that's growing. So the pie is bigger, and there are more people who can live off that pie."

Meanwhile, with Singapore Exchange having introduced new Mainboard listing rules for mineral, oil and gas companies last September, industry players see more small and mid-cap companies in these sectors seeking funding in the Singapore capital market.

Sebastian Jones, an associate director at Canaccord Genuity Singapore, observed that there are a number of mining firms looking to list on SGX.

"I think it's quite an important time for Singapore. The traditional mining exchanges in Toronto and London and Australia - there's a distinct lack of capital in those exchanges today, particularly for small to mid-cap companies who are seeking developmental capital," said Mr Jones, also one of the founders of the Singapore Mining Club. "(These companies) see Singapore as a realistic alternative."

Mr Jones, who moved from London to Singapore a year ago, added: "It's quite remarkable how much more activity there is right now in Singapore than there is in London."