Asia Commodity Exchanges

When you think of commodities in Asia what do you think of? Do you think of the Tokyo Commodity Exchange (TOCOM) and its Gold contract? Or do you think of the Greasy Wool futures of the Sydney Futures Exchange? Perhaps you may even think of Oman Crude Oil of the Dubai Mercantile Exchange (DME). Have you ever heard of the Multi Commodity Exchange (MCX) of India or The Agricultural Futures Exchange of Thailand (AFET) or how about the DaLian Commodity Exchange (DCE) in China?

Perhaps you may think that Bursa Malaysia trades only its benchmark Kuala Lumpur Composite Index (KLCI) and the country’s equity issues but it’s the home of the Crude Palm Oil future (FCPO). Malaysia is the worlds largest exporter of palm oil accounting for around 50% of the world production. Palm oil is used in margarine and shortening fats among others. In addition the palm oil fruit, the source of palm oil, also produces palm kernel oil a non-edible oil used in cosmetics. For every 10 units of palm oil there is 1 unit of palm kernel oil.

India has a long history of futures commodity trading. During the American Civil war (1861-1864) the British where buying cotton or the “white gold” from India to feed the looms in Lancashire and Manchester when they could no longer buy from the Americans. As early as 1875 the Bombay Cotton Exchange was established only 5 years after the Chicago Board of Trade.

Today, the National Commodity & Derivatives Exchange (NCDEX), Multi Commodity Exchange of India (MCX) and the National Multi Commodity Exchange (NMCE) comprise the bulk of commodity exchanges in India. There are 73 products offered by India’s largest commodity exchange, the MCX, alone. Spices such as Cardamom or Jeera, Metals including Aluminum (Aluminium for some), Lead and Nickel. Rice, Maize and Soybeans are just some of the grains also available for trading. It is an impressive basket of goods.

The second commodity exchange, the National Commodity & Derivatives Exchange offers an equally broad product range such as Guar Seeds and Mustard oil but trades many of the same products as the MCX. These exchanges will undoubtedly consolidate in time which will increase liquidity, lower costs and improve price discovery.

Apart from TOCOM there is the Tokyo Grain Exchange (TGE). The TGE was founded October 1952 and offers futures and cash settled futures in its agricultural products Azuki Bean, Coffee (Robusta and Arabica), Corn, Raw Silk, Soybeans, Soybean Meal and Raw and Refined Sugar. The exchange currently has 134 member firms which is 30% more than TOCOM with just 102.

Electronic trading to the TGE is available from the comforts of your own home too. When electronic trading went live at the exchange October 1 2007 GL Trade was ready with its new SLE (Server Link to Exchange) via Fimat (Now part of Newedge).

There is also the Central Japan Commodity Exchange (CCOM) trading 10 products Gasoline, Kerosene, Gas Oil, Eggs, Ferrous Scrap, RSS3,TSR20, the Rubber Index, Aluminum and Nickel. In September 2007 CCOM rolled out the upgrade of its electronic trading system called “Trinity-X” and has 37 members. It also signed an MOU with the Shanghai Futures Exchange late last year.

The Agricultural Futures Exchange of Thailand trades “White Rice 5%” (5% means that a maximum of 5% of the rice can be broken) and “Natural Rubber Ribbed Smoked Sheet No.3” or RSS No.3 (the number 3 is the middle grading of the quality on a scale from 1 to 5 with 1 being the best as stipulated by the international Rubber Quality and Packing Conference).

Thailand is also the number one producer of rubber in the world. Further still they produce “Tapioca Chip” and “Tapioca Starch Premium Grade”. Tapioca is produced from the cassava plant and Thailand is the number 3 producer in the world behind Brazil and Nigeria.

In China there is the DaLian Commodity Exchange (DCE) as previously mentioned and there is also the Zhengzhou Commodity Exchange (ZCE) trading in cotton, sugar, hard winter wheat and strong gluten wheat, PTA (Pure Terephthalic Acid) and rapeseed oil. The DCE trades Corn, 2 types of Soybeans, Soybean Meal, Soybean Oil, LLDPE (Linear Low Density Polyethylene) and RDB Palm Oil (Refined, Bleached and Doedorised). The Corn futures rank in the top 3 commodity futures in the world by volume and the Soymeal futures in the top 20.

There is also the Shanghai Futures Exchange (SHFE) primarily specializing in metals namely Aluminum, Copper, Gold, Zinc, Rubber and Fuel Oil. The gold future was launched only on January 9, 2008; a 1kg contract just like the one on TOCOM. All we need now is a standard Yen/Renminbi currency future contract and we are ready to arbitrage. Incidentally, MCX gold in India is a 1kg contract too. Vendors?

As the world grows richer and consumption grows with it commodities in Asia can only flourish. Nations and her farmers will seek to hedge their crops and extra-exchange arbitrage trading of similar commodities will increase as regulation matures and trade continues to open. Prescient regulators, brokers, risk managers and ISVs stand to benefit.

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