China taps Singapore in push to boost pricing power in metals
Chinese metals traders have opened offices and hired top talent in 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. Chinese 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 Singapore.
Chinese firms backed by sprawling metals conglomerates, including top Chinese trading house Maike Metals Group, are among those that have set up a base in Singapore.
Awin Resource International, owned by a Chinese billionaire, and Kyen Resources, backed by four Chinese firms 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 Chinese 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 home-ground advantage to connect Chinese buyers with sellers in Southeast 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.
A unit of Amer International Group, Awin now has 30 staff in Singapore compared with just one a year ago. Amer is owned by Wang Wenyin, one of the 20 wealthiest people in China with a net worth of about US$5 billion, according to Forbes.
The firm was targeting growth through acquisitions, particularly to build its copper supply, a person familiar with the matter said.
Maike, which has annual sales of 83 billion yuan (HK$104.5 billion), was 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.
The Chinese metals trading boost in Singapore comes as the global commodities trade is being transformed, with easy credit drying up and trade houses benefiting from lighter regulation and lower capital-holding requirements compared with banks.
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, said Satvinder Singh, assistant chief executive of government agency International Enterprise Singapore.
“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.