Commodity Exchange Review, 2012
Derivatives volume expansion led by Asian exchanges
THE REASONS WHY commodity markets have been propelled into the mainstream as a financial investment class are well documented. Just as importantly, the latest demand-driven cycle for commodities came at the same time as supply was stagnating. This was as a consequence of the lack of investment
in projects throughout the 1980s and 1990s (partly a result of low real commodity prices themselves), limited access to resources, rising production costs, monopolistic market structures, feeble R&D expenditures, high taxes, and shortages of specialised finance and labour among them. It also coincided with growing interest in alternative assets after the Dot-Com boom and stock market crash post 9/11, propelling commodity markets into the spotlight – both as an investment class in its own right and as a portfolio diversifier. A long-term demand trend for commodities was re-established, with the strength of emerging market demand (principally led by China) a key factor in the recovery seen in real prices. As commodity investing became increasingly popular
(together with the emergence of new products such as ETPs), this once elusive asset class was opened to a wider audience. New commodity exchanges emerged, and older traditional arbiters of price risk management ramped-up their offerings.
... the only segment of derivatives that
experienced an increase in volumes last year was commodities (+19%)
The ‘traditional’ commodity exchanges have been at the forefront of this transformation, with new exchanges emerging as its consequence. IntercontinentalExchange
(ICE) is a ubiquitous
example of the latter. And just look at the number of specialised commodity exchanges that have emerged in the European energy space as a consequence of energy market deregulation. There has been the odd failure such as German
exchange Greenmarket’s exit from the EU’s carbon market [this is a market after all – although nobody lost money apart from initial investors], but generally speaking, market stakeholders have come together to develop centralised, regulated, and well organised venues and platforms to promote the orderly and secure price formation required of producers, consumers, speculators and others. Their number,
0 5
9.7 2011
and the scope and breadth of offerings has risen inexorably, rolling out new and improved contracts for risk transfer. Following the latest financial crisis, global trade
is picking up once again – even though cross-border capital flows remain 60% below their pre-crisis peak and the growth in global financial assets more generally has stalled. Nonetheless, the commodities world continues as a key component of the investment complex. This has been translated into statistics released from
the World Federation of Exchanges (WFE) which shows that the only segment of the derivatives markets that experienced an increase in volumes last year was commodities (+19%) – even surpassing interest rate and currency derivative markets in terms of number of traded contracts.
Worldwide Exchange Traded Derivatives (billion contracts)
10 15 20 25
5.4 4.7 EAME 9.9
Asia Pacific Americas
7.6
9.0 2012 Breakdown by Product in 2012
Currency 12%
Commodity 15%
Equity 59%
Interest Rate 14%
Source: World Federation of Exchanges, March 2013 March 2013 9
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