Pan-Asian commodity exchanges

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: During Prime Minister Manmohan Singh’s visit to China, the focus of discussion was on political-strategic-trade issues. With the two Asian giants becoming increasingly large consumers of major metals, oil and agro-commodities, there is also a need for increasing cooperation in commodity markets that could enable the eventual emergence of pan-Asian commodity exchanges. These can become new centres of commodity price discovery in the Asian continent, as against commodity exchanges in Europe and the US.

There are three commodity exchanges in China after the merger of 50 exchanges into 14 in 1995 and subsequently into three in 1999. India’s three national commodity exchanges, a fourth on its way, and 20 regional exchanges need to collaborate among themselves, and also with Chinese and other major exchanges in Japan, South Korea, West Asia, Malaysia and so on, to become price signallers of the commodities in which Asia is a large producer and consumer.

Around 2003-04, China overtook the US to become the world’s leading consumer of copper, nickel, iron ore, lead and other non-ferrous metals. China now consumes some 22% of global copper and aluminium output, compared to America’s 16% and 20% respectively. Its steel output of 489 million tonnes in 2007 is more than twice that of the US and Japan combined. This year, China, already the second largest oil consumer, could displace South Africa as the world’s largest gold producer.

India shows rapidly rising trends, too. Making the world’s cheapest car can make it a global auto hub, and large investments in power and infrastructure will see commodity demand boom.

National commodity exchanges in India are a post-2003 phenomenon, and it took much urging by many Indian academic and other international institutions for the government to give the go-ahead. Now, it is time to leverage the gains of the last four years by removing legal and institutional constraints, and by adopting a global outlook. The necessity for efficient and highly liquid commodity exchanges in India (and more broadly, Asia) has also been emphasised at a recent Assocham-organised international conference on commodity futures.