Ladies and Gentlemen,
We are here today against the backdrop of a challenging global environment for the commodities trading industry.
a. Demand and supply disruptions arising from the COVID-19 pandemic
b. Shifting supply chains due to the US-China trade war.
2 Despite these challenges resulting in higher price volatility for many commodities, the commodities trading industry has remained resilient.
a. Commodity traders have risen to the task of managing the effects of market dislocations and continue to play an important role in reallocating commodities across different industries and regions.
b. This is demonstrative of the enduring nature of the commodity trading industry even in times of crisis, as the value for traders and a marketplace remains.
3 As more countries embark on further economic re-opening, I am confident in the gradual recovery of global demand for commodities, especially from the Asia region.
Where we are at in Singapore
4 As a small country with no natural resources, Singapore has succeeded as a commodity trading hub due to our continued focus in establishing strong trade infrastructure and other supporting sectors such as finance, insurance and shipping.
5 Today, the commodities trading industry is a key component of our wholesale trade sector which contributed 17% of Singapore’s GDP in 2019.
6 Under Enterprise Singapore’s support, there are now more than 400 international commodities trading companies in Singapore across varied commodity domains such as energy, industrial metals and agriculture products.
a. These companies have created more than 16,500 jobs of which 83.5% are PMET jobs.
7 Our robust trading ecosystem allows traders to draw on market expertise and conduct business transactions with key partners with greater ease through proximity and identical trading hours.
a. For example, 9 of the top 10 largest global energy companies conduct trading activities in Singapore.
8 To build on the vibrant trading ecosystem in Singapore, we will continue to develop supporting services and sectors to attract international trading firms to anchor new business activities in Singapore.
a. JERA Global Markets has established Singapore as their global hub for LNG trading and shipping optimisation.
b. Singapore also issued bunker supplier licenses to Mercuria’s Minerva Bunkering, Trafigura’s TFG Marine and Vitol’s V-Bunkers earlier this year. As subsidiaries of the largest energy trading companies in the world, their entries will help to support the bunkering and shipping sectors.
9 However, we cannot take the success of the commodity trading industry in Singapore for granted. Let me highlight three challenges that need to be addressed to build a conducive environment for the continued growth of the commodities trading industry in Singapore.
First Challenge – Need to ensure reliability of supply chains
10 First, the need to ensure reliability of supply chains. The commodities trading industry is dependent on reliable global supply chains to move commodities across different industries and regions. However, there are two threats that exist.
11 First, the disruption of shipping routes and entire global supply chains due to COVID-19. We also saw instances where countries enforced new export restrictions and other trading barriers to withhold the movement of commodities and essential products like health supplies and food.
a. This caused commodities traders and companies across all industries to scramble to locate new supply chains to meet the needs for their operations.
12 As a small and open economy, Singapore understands the importance of open and connected supply chains for countries across the world to have access to resources in order to emerge from the crisis stronger.
a. We partnered like-minded countries like New Zealand and Brunei in March to launch the Joint Ministerial Statement to commit towards maintaining global supply chains and to refrain from imposing export controls on essential goods. Today, we have a total of 12 signatories to the Joint Ministerial Statement, with the latest signatory being China.
b. Even as others were closing borders, we continued to keep our logistics chain open and refrained from imposing any trading barriers.
13 Second, the rise in protectionism threatens the reliability of global supply chains and the free flow of trade and services.
a. Increased tariffs applied between various countries in recent years have significantly altered trading flows and global supply chains, including commodity trading.
b. Singapore will continue to work with like-minded partners to uphold a strong multilateral rules-based trading system as we believe that free trade globally through a multilateral rules-based trading system remains the most beneficial system for the commodities trading industry.
14 Singapore has established an extensive network of 25 Free Trade Agreements (FTAs), where our partners collectively represent more than 85% of the global GDP.
a. These FTAs have built strong trade linkages between Singapore and key trading partners around the world which assists commodities traders that utilise Singapore as a re-distribution hub.
b. These FTAs also allows commodity players to conduct value-added activities for commodities in Singapore before re-export to enjoy tariff-concessions.
c. We will continue to build these mutually beneficial trade linkages based on the needs of industries, including the commodities trading industry.
Second Challenge – Need to improve sustainability of commodities trading
15 The second challenge is the need to improve sustainability of commodities trading. There has been an increase in demand for sustainability of commodities globally.
a. This trend has been sped up by COVID-19 as many countries have adopted fiscal policies that aim for a ‘green recovery’ through green infrastructure, electrification of vehicles and renewable energies.
16 The commodities trading industry must adjust to two aspects resulting from the demand for sustainability of commodities.
17 First, there will be an increased emphasis on the types of certifications for commodities with regards to sustainable production.
a. Certifications and standards for production of commodities will need to be reviewed to ensure that they meet global targets of sustainability such as reduced carbon emissions.
b. The commodities trading industry will play an important role towards promoting the utilisation of sustainable commodities. These includes educating industries on new sustainable commodities to generate demand, and to form a new marketplace for these commodities.
18 Singapore fully supports the adoption of the utilisation of sustainable commodities.
a. For example, Vitol’s V-Bunkers contributed to maritime sustainability by launching Singapore’s first and currently only Liquified Natural Gas (LNG) powered, dual fuel bunker tanker, the “Marine Vicky”.
19 Second, new commodities such as carbon trading will be created to meet the global goals of sustainability. Well-established carbon markets can be used to offset the temporary increases in carbon emissions around the world.
20 Singapore is well-positioned to develop as a marketplace for carbon trading and other carbon services by leveraging on our status as a leader in sustainability and as a trusted financial, business and trading hub in the region.
a. Today, international trading companies present in Singapore like Shell and BP are active in carbon markets related activities in Singapore, with growing interests from other trading companies and service providers.
b. To further strengthen Singapore’s value proposition in this area, Enterprise Singapore and the Economic Development Board have launched a study to assess the economic opportunities arising from global carbon market developments and provide recommendations for Singapore to develop as a carbon services and trading hub. This study is expected to be completed by Q1 2021.
c. We are also working with corporates to raise their carbon awareness and reduce their carbon footprint to catalyse demand for carbon services. At the same time, we will continue to work with companies to anchor and develop carbon markets related capabilities in Singapore.
Third Challenge – Need to enhance financing mechanism for commodities
21 The third challenge is the need to enhance the financing mechanism for commodities. An estimated 80% of global trade relies on trade financing through short-term guarantees and revolving credit facilities.
a. Many commodities traders rely heavily on trade financing, that can easily be accessed in Singapore’s financial sector, to conduct multiple high-volume transactions
22 We want to uplift standards for the commodities trading industry to increase banking confidence in the industry. There have been isolated cases of mismanagement and defaults globally that have reduced confidence amongst banks to provide financing to commodity trading companies.
23 We plan to uplift standards for the commodities trading industry by partnering the industry through two key initiatives.
a. First, the Association of Banks in Singapore (ABS) with the support of MAS, ESG and ACRA is developing a code of best practices to strengthen commodity financing standards in Singapore. This will be finalised in Q4 2020.
i. I am glad that trading companies, who have an interest in ensuring that higher standards are being practiced within the industry, have actively provided inputs to ABS.
ii. These steps being taken by the industry will result in a safer trading environment, a more rigorous credit assessment of trading companies, and, ensure access to banking facilities that are commensurate with creditworthiness.
iii. This will not only strengthen the fundamentals of the trading sector, but also Singapore’s resilience, relevance and competitiveness as a global commodities trading hub.
b. Next, DBS and Standard Chartered have jointly led a workgroup of more than 20 Banks with the support of MAS and Enterprise Singapore to create and conduct a proof-of-concept for a digital Trade Finance Registry. The Registry has been endorsed by ABS, and will provide banks with greater visibility for detecting duplicate financing and validating trade
24 Within Singapore’s ecosystem, industry players have also developed new digital solutions that will aid in the governance of the commodities trading industry.
25 ClearDox and Contour are some promising blockchain platforms for commodity trade finance which have set up in Singapore and have live solutions. These digital solutions will help to improve efficiency of trading operations while reducing fraud risks through increased visibility of trade transactions.
Conclusion
26 Singapore’s success as a commodities trading hub is a result of our continued emphasis placed on building up trade infrastructure and supporting sectors. As we overcome the immediate challenges, we will also establish the conditions for the long-term success and sustainability of the sector. Thank you very much.