SPEECH BY MR LIM HNG KIANG, MINISTER FOR TRADE & INDUSTRY at the GLOBAL TRADER awards NETWORKING COCKTAIL 2010 on FRIDAY, 21 MAY 2010, 7.05pm FULLERTON HOTEL

Distinguished guests,

Ladies and gentlemen,

Good Evening

It is my pleasure to join you at the Global Trader Awards and Networking Cocktail 2010.

Promising Outlook for Asian Commodities Markets

As the global economy recovers from the recent financial crisis, we see commodity demand and trade picking up. Credit is returning and traders are handling volumes that are close topre-crisis figures[1]. Asian commodity markets are expected to remain robust in the medium to long term, with demand being led by countries like China and India. Two key trends are expected to shape the Asian commodities markets over the next five years.

First, in the wake of the global financial crisis which saw high volatility in prices and a high level of defaults, Asian-based commodity players are now more concerned about managing price and counterparty risks. The crisis highlighted the systemic risk embedded in the global financial system. When Lehman Brothers collapsed, confidence was shaken, and concern over counterparty risks multiplied. This has led to an increasing use of central counterparties to clear their over-the-counter (or OTC) trades. Indeed, there was phenomenal growth of OTC clearing revenues through global OTC clearing houses like NYMEX Clearport and ICE Clear during the downturn.

Second, regulatory changes are imminent globally. The US Commodity Futures Trading Commission (CFTC) and the EU regulators are likely to adopt a range of measures to limit speculation, increase transparency and mandate central clearing for OTC derivatives. At the same time, new regulations may be adopted by China and India as they gradually liberalise their domestic markets[2].

Strengthening Trade Services in Singapore 

Capitalising on these trends and the increasing structural shift of commodity trade flows into Asia, Singapore is well positioned to transit from being a regional hub to a global commodities trading hub. We aim to do so by focusing our efforts on the development of a strong cluster of trade-supporting services. These include trade financing, risk management, price discovery and related ancillary services.

Commodities Sector Development 

We would like to see a vibrant commodities derivatives sector evolve to enable price discovery and risk management. We welcome initiatives from industry players to build the necessary infrastructure such as centralised clearing platforms, or electronic platforms that can facilitate the growth of the commodities derivatives market, and make it more efficient and effective for market participants. Such initiatives will have our full support and facilitation. We will also continue to support development of new commodity futures and OTC products that are tailored to suit the needs of the trading community here.

For example, we supported the development of the iron ore swap on SGX AsiaClear launched in April last year. It achieved a record high of 4,436 contracts cleared last month[3], well ahead of competing clearing houses such as LCH.Clearnet and ICE Clear. In February this year, the Singapore Exchange launched its 380 Fuel Oil Futures Contract. This was followed by the Singapore Commodity Exchange’s Gold Deferred Settlement Contract in March and Robusta Coffee Futures Contract in April. 

The Singapore Mercantile Exchange, or SMX, has recently announced intentions to ‘go live’ in August and will launch a basket of commodity products that includes Singapore’s first gold futures contract that will be physically settled. This gold contract will be delivered at vault facilities in Singapore, including the new state-of-the-art vault facility operated by JP Morgan at the Singapore Freeport, Singapore’s first round-the-clock free trade zone. This new business model by SMX will contribute to Singapore’s offerings as a global commodities trading hub. 

GTP Enhancements

We also want to deepen structured financing capabilities in Singapore to enable better credit and performance risk management. Currently, the Global Trader Programme or GTP administered by International Enterprise Singapore also incentivises risk management activities, such as hedging with commodity and freight derivatives either over the counter, or on an exchange. However, more can be done. Structured Commodity Financing, or SCF, is one area that can reduce supply chain risks. SCF tools such as pre-financing, warehouse financing, project financing etc, are increasingly being offered by commodity trading houses either by dedicated in-house teams or their subsidiaries as a value-added service to their suppliers or buyers.

To entrench structured financing functions in Singapore, I am pleased to announce that with effect from today, SCF activities will qualify as an approved activity incentivised under IE Singapore’s GTP. We expect this GTP enhancement to contribute to higher trade volumes and strengthen Singapore’s position as an international trading hub. This enhancement will also lay the foundation to build intellectual capital in structured financing within commodity houses in Singapore.

Conclusion

We hope that with a strong cluster of trade supporting services in Singapore, Singapore-based traders can grow and develop faster. I encourage all of you to use Singapore as a base for growing your business.

I would like to congratulate all Award recipients of the GTP and I wish you a pleasant evening. Thank you.