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SINGAPORE: The introduction of metals futures on the Singapore Exchange is set to boost interest in metals trading in Asia and it will also likely position Singapore further as a commodities trading hub.
But some analysts said it will take a while before metal futures see good volume, indicating that the market is still fairly niche.
The trading of metals is getting more popular among retail investors.
And by the first quarter of next year, investors will have access to metals futures contracts that will be traded and cleared on the Singapore Exchange.
SGX is co-developing the products with the London Metal Exchange (LME).
Pricing of these monthly contracts is based on the LME's global benchmarks.
LME said it's planning to roll out two contracts, likely in Singdollars, targeted at corporate and retail investors.
Liz Milan, managing director, London Metal Exchange, said: "If you look at what contracts are attractive for the market in Asia for the fundamentals of supply and demand and for the fact that these contracts are also available on the Shanghai futures exchange, I think it's obvious therefore that the two most liquid that we would look at initially would be copper and zinc. They are the ones who have the most trades currently in this time zone."
Other metal contracts are expected to follow later in the year.
Industry watchers said the new platform will likely only appeal to investors who may want to make a pure play on specific metals.
However, they said those looking at portfolio diversification may be better off buying a fund benchmarked on metals and natural resources.
Wong Sui Jau, general manager, Fundsupermart.com, said: "For directly trading it, generally you are using futures contracts so the risk is much higher given that generally for such derivatives, it's highly leveraged. So you need to understand the ins and outs of these types of markets very, very well before you go into it,"
For the first six months of the year, volumes of lots traded on the LME grew 7.5 per cent on-year to around 59 million lots, led by strong trades in copper futures and options.
Steel trading also jumped nearly five-fold to 57,606 lots.
Analysts said the weaker US dollar and falling LME inventories are likely to provide more upside potential for base metals especially for nickel. - CNA/vm
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