Reuters: Targeting global trading power, top metals user China taps Singapore
Chinese metals traders have opened offices and hired top talent in the Asian financial hub of Singapore over the past year, aiming to capture opportunities created by the exit of a string of Western banks from the global commodities trading business.
China has long sought more pricing power in commodities as it is the largest consumer of many resources, including copper and iron ore, but does not produce enough and must import at global prices. Mainland firms are now aiming to cut out middlemen and connect with a wider array of producers and users.
As Western banks have ditched their commodities divisions due to mounting regulatory costs after the financial crisis, Chinese trading firms have seized the chance to build their trading muscle in the international hub right at their doorstep.
Chinese firms backed by sprawling metals conglomerates, including top mainland trading house Maike Metals Group, are among those that have set up a base in Singapore.
Awin Resource International Pte Ltd, owned by a Chinese billionaire, and Kyen Resources, backed by China's leading supply chain management company active in the metals industry, have launched offices in the city-state over the past one year.
While the Chinese metals trading firms in Singapore will face stiff competition from established traders such as Glencore and Trafigura, analysts expect them to be able to profit from their mainland connections.
The firms will be able to procure for themselves and exploit pricing gaps between China and global markets. They will also be able to use their homeground advantage to connect Chinese buyers with sellers in South East Asia and other regions, financed by banks in Singapore.
"There are some significant Chinese traders, and they're definitely moving more of their business overseas. They have size and capital to compete, certainly versus regional players," said Ivan Szpakowski, Citi commodities strategist in Shanghai.
The Chinese firms are looking beyond the staple arbitrage trades that rely on interest rate differentials, leveraging instead their shareholder heft to build their business. And they have hired specialist physical metal traders for the purpose.
Awin, for instance, has taken on former Xstrata employees Felipe Williams, who is now Awin's head of base metals, and Javier Gausachs as head of mergers and acquisitions. It has also hired a senior trader from Louis Dreyfus
A unit of Amer International Group, Awin now has 30 staff in Singapore compared to just one a year ago. Amer is owned by Wang Wenyin, one of the 20 wealthiest people in China with a net worth of around $5 billion, according to Forbes.
The firm is targeting growth through acquisitions, particularly to build its copper supply, a person familiar with the matter said. The company declined to comment.
Maike, which has annual sales of 83 billion yuan ($13.39 billion), is ramping up its activities in Singapore, two sources said. Its joint venture with China's third-largest copper producer, Jinchuan Group, was set up there last year. Maike did not respond to requests for comment.
GT Metals & Investment, backed by copper product maker Jiangsu Jinhui Group, launched its business in the city-state late last year.
NEW COMMODITIES LANDSCAPE
The Chinese metals trading boost in Singapore comes as the global commodities trade is being transformed, with easy credit drying up and trading houses benefitting from lighter regulation and lower capital-holding requirements compared to banks.
Credit Suisse last month became the latest major bank to wind down its commodities trading.
Besides metals, China has also sought to build trading heft in agriculture. Chinese trader COFCO Corp earlier this year bought majority stakes in Dutch grains trader Nidera and Noble Group Ltd's agriculture businesses.
A big draw for commodities firms in Singapore is what executives at these firms say are generous tax concessions offered on a case-by-case basis by the government, as well as the presence of major banks, producers such as BHP Billiton and local legal firms that facilitate trading.
From just a handful five years ago, metals and mineral traders based in the city-state have grown to more than 100 now, Satvinder Singh, Assistant Chief Executive Officer of government agency International Enterprise Singapore, told Reuters.
"There are a lot of opportunities within the region that would be very interesting for smaller, more nimble outfits to profit from," said Mark Keenan, analyst at Societe Generale in Singapore.
($1 = 6.1982 Chinese Yuan)
(1 US dollar = 1.2525 Singapore dollar)
Kyen has been qualified under Singapore’s Global Trader Programme
Singapore is a big player in the import/export trade market – with its strategic position in Southeast Asia, many see it as connecting both the eastern and western hemispheres in terms of trade. This dominance is clearly reflected in Singapore’s many state-of-the-art import/export services and procedures, as well as its connections to hundreds of ports all around the world.
Launched in June 2001, the Global Trader Programme is a merger of the Approved Oil Trader (AOT) and the Approved International Trader (AIT) programmes which started in 1989 and 1990 respectively. The Approved Oil Trader (AOT) Programme aimed at capitalising on Singapore’s growing role as a refining centre in the region. Shortly thereafter, the Approved International Trader (AIT) Programme was launched to attract non-oil companies. Twenty years later, both the Programmes were merged into the GTP which now allows for an expanded product base for companies to trade in, including both energy as well as non-energy products and commodities.
Kyen Resources is proud to be enrolled in GTP since August 2014. There are currently over 260 companies under the GTP basing their offshore trading activities in Singapore. Some of the companies enlisted under the GTP Scheme include: Goodyear and Bridgestone, Shell, BP, Vitol Asia, Hong Kong based Li & Fung, Petrobras, Bio-X, Vietnam National Petroleum Corporation, Tianbao Petroleum from China, Brightoil Petroleum from Hong Kong, Tricorna, Cargill, Hong Kong-based Noble Group, Louis Dreyfus Commodities Asia, Duferco Asia etc.