Hong Kong/Singapore: Companies such as Barclays Plc,Morgan Stanley and Citic Group may help start a commodities exchange in Hong Kong to tap growing raw materials demand from China, the world’s second largest oil consumer.
The proposed exchange will start in the first quarter of 2009 and will offer dollar-denominated fuel oil contracts for delivery into China, Barry Cheung, chairman of Hong Kong Mercantile Exchange, said in an interview on Tuesday.
Oil and copper futures soared to records this year in New York and London, as investors seek alternative assets to a weak dollar and declining equities. Hong Kong wants to bolster its position as an Asian trading centre as rivals Tokyo and Singapore offer commodities trading.
“It’s a very difficult market to crack into because the investment community isn’t familiar with fuel oil,” Akira Kamiyama, a trader at Mitsui and Co., said in Tokyo. “Physical fuel oil traders would have interest but their participation alone won’t be enough to provide liquidity.”
Hong Kong is trying to succeed where rival Singapore has stumbled. Singapore had scrapped two crude oil contracts and two fuel contracts because of lack of interest.
“We think this is a good time to do it because the volume of commodity imports into China has grown tremendously last year,” said Cheung. “Though there are similar contracts in Singapore they don’t quite meet the needs of people who are importing fuel oil into China,”he added.
China imported 2.86 million tonnes of fuel oil in May, 17% more than a year ago, according to customs data. Commodities trading in China reached a record in 2007.
The proposed commodities bourse, which will be privately owned, has also attracted interest from Lehman Brothers Holdings Inc., Merrill Lynch and Co. and Noble Group Ltd, Cheung said. The shareholding structure will be decided in a few months, he said.
The Hong Kong bourse also plans to introduce other commodity contracts, Cheung said, without giving details. It expects to get approval to operate from the Hong Kong Securities and Futures Commission by the end of this year.
Cheung’s exchange may compete with the Hong Kong Exchanges and Clearing Ltd, operator of Asia’s third largest stock market.
The Hong Kong Exchanges and Clearing won’t rule out the possibility that it may offer oil futures, chairman Ron Arculli told reporters on Wednesday. It is also studying carbon emissions trading, he said.
Still, commodities isn’t a priority now, Arculli said. “It would be great for Hong Kong as an international financial centre if the commodities exchange succeeds,” he added. “What tops our agenda is to attract top-tier overseas companies to list here.”