Ho Chi Minh City, Dec. 6 - The Singapore Commodity Exchange is planning to relaunch its 13-year-old robusta coffee contract by the end of next year, the exchange's president, Jeffrey Tan, said Thursday.
"We noticed that trading of coffee futures contracts is not very active during Asian hours, but with so many major coffee producers in Asia such as Vietnam and Indonesia, and with coffee consumption growing rapidly in Asia, we think there may be an opportunity for a niche contract to meet the needs of the industry," Tan said on the sidelines of a coffee industry conference.
According to Tan, Singapore has a "small window of time to take another shot at the coffee contract" before producer countries such as Vietnam join the jostle to establish themselves as Asia's commodity trading hub, spurred by the ongoing commodities rally.
Vietnam established its own coffee exchange in Buon Ma Thout earlier this year, but it is mainly a physical exchange that has yet to launch an international futures contract.
The Singapore Commodity Exchange, or Sicom, first introduced its robusta coffee futures contract in 1994, but this lost momentum within one year and hasn't been traded "for as long as (I) can remember," said Tan.
Only rubber futures are actively traded on Sicom, but volumes are around a 10th of trades on the benchmark Tokyo Commodities Exchange.
The coffee contract failed because of its limited distribution channels and high entry level requirements for retail investors - such as the expense of trading terminals - said Tan. Traders added that regulations to limit speculation on Sicom in the 1990s reduced liquidity.
With a new electronic trading platform to be ready by June 2008, Tan believes commodity futures trading on Sicom will be "a whole new ballgame."
As well as live prices and Internet trading that will allow easier access for hedgers and speculators, Tan said, Sicom will come under the authority of the Monetary Authority of Singapore in February 2008.
"This means that clearing members on the Singapore Exchange will be able to trade on Sicom without paying a separate membership fee," said Tan.
Contract Specifications To Target Niche Asian Market
Sicom is meeting with potential stakeholders to gauge market interest and potential niches to fill, said Tan.
"We're going to have to tweak the contract specifications to suit Asia, maybe to target lower grades of coffee, with delivery in Singapore or Vietnam to serve the needs of growers, buyers, sellers and speculators," said Tan. "It's going to be tough to compete head-on with the Euronext.liffe contract in London or the Intercontinental Exchange contract in New York."
Sicom has yet to approach Euronext.liffe or ICE for formal discussions of a tie-up.
"We've spoken with coffee traders and the association in Singapore, and we're doing so with their counterparts in Vietnam. The contract may take the form of a tie-up with Vietnam, or with the benchmark exchanges in London or New York if they are interested. We're still at the exploratory stage," said Tan.
Working in Singapore and Sicom's favor is the island republic's reputation as a financial center, and the presence of major financial institutions, investment banks and commodity houses.
"Even though we are not a producing country, Singapore has always been an important secondary site for commodity trading," said Tan.
"With our expanded capacity, we definitely want to be trading more than just rubber. We will finally have the tools to push out to the region with an open market system and real-time prices that will provide opportunities for arbitrage," said Tan.