Singapore Reigns As The Top Commodities Trading Hub

A recent report published by IE Singapore revealed that Singapore, with a total commodities trade turnover of US$1.3 trillion in 2014, remains the top commodities trading hub in the region.

The turnover has nearly tripled from the 2009 value. It is an important element of the local economy in terms of employment creation. Around 14,600 people were employed in the sector in 2013. The report revealed that Singapore accounts for 80% of the world’s top commodity trading companies across all sectors.

Singapore’s unique value addition

Singapore has a higher density of commodity trading companies as compared to regional counterparts like Hong Kong. With such high concentration of trading companies and enhanced trading facilities, Singapore is improving the liquidity in the regional market. This adds to the value chain by bringing down the commodity costs while increasing supply, security and better hedging opportunities.

Singapore has an ideal ecosystem for commodity trading, with numerous producers, consumers, intermediaries and financial institutions. As the world’s third largest foreign exchange hub, Singapore provides access to global payments and clearing infrastructure.

Ideally located along the major trade routes of the world, Singapore has a well-connected air and sea route and has world-class warehousing, logistics and terminal facilities. It has a multilingual talent base that is competent to service the fast growing regional markets as well as the mature and more demanding international markets.

Singapore has successfully retained its AAA credit rating even amidst the most turbulent global economic conditions. The credit rating is crucial for large volume traders, as inventory held in poorly rated jurisdictions would be expensive to fund. Singapore is consistently rated as one of the best and easiest place to do business. In the World Bank’s “Doing Business 2016” report, Singapore held on to its top rank in the world for the 10th year running.

Having a robust legal framework in Singapore is a significant factor when it comes to business contracts involving cross border entities. Singapore is a leading centre for contract arbitration. The transparent regulatory and tax framework ensures stability; an indispensable ingredient for making long-term business decisions.

Singapore is home to over 80% of the World’s top 30 oil and gas companies, with more than 400 companies in Singapore engaged in trading oil and gas. With the highest concentration of storage facilities and the world’s largest bunkering port, the republic remains the largest Asian physical trading hub and price discovery centre. Singapore is the key hub for metals and minerals trading, with over 70% of the world’s top companies having trading bases in Singapore. Over 20% of the world’s agri-commodities are traded from Singapore. Major regional players in the agro-commodities such as Olam, Wilmar and Noble, are listed in Singapore.

Wholesale trading sector takes the lion’s share

Singapore is a hub conducive to physical trading across all commodities. Since 2010, Hawksford Singapore has been publishing a quarterly report on the business formation trends in Singapore. The report, among other aspects, also studies the sector-wise new business formations in Singapore. The wholesale trading sector has always held the largest share among the total new business formations; it generally accounts for 19%- 20% of the total new business formations.

Sector specific scheme

The Global Trader Program allows well-established companies a concessionary tax rate on qualifying trading income for a five year renewable period. Bona fide players in the sector with worldwide networks, good track records and substantial international physical trading activity, are eligible to apply for the concessionary tax treatment. In order to qualify, they must have incurred substantial and directly-attributable local business spending, with sizeable employment of trading talent and key decisions made in Singapore.

Besides the concessionary tax program, Singapore has a simple and competitive tax regime: while the corporate tax is 17%, the maximum personal income tax rate is only 22%. This is attractive even for smaller players given the value proposition that Singapore offers.

Commenting on the observations made in the report, Ms. Jacqueline Low, COO of Hawksford Singapore says, “Singapore has a high concentration of participants along the value chain, such as producers, consumers, brokers, traders and other facilitating agents. The possibility of greater liquidity, price discovery, cost reduction, inventory management, risk management etc., along with the robust presence of international financial institutions and physical connectivity, provides the best value proposition. More importantly, commodity trading is becoming increasingly Asia-centric. Singapore, with its political and economic stability, gives a kind of assurance for global traders to invest and hold assets in Singapore. The pro-business environment and regulatory regime makes it very easy for players in the commodities trading sector to set-up and operate companies in Singapore. We find there is an increasing number of companies from the US, UK, Latin America, Russia, India and China setting up subsidiaries in Singapore. We anticipate the numbers to grow in the coming years as commodities consumption in Asia is predicted to grow in tandem with the growing prosperity of the middle class.”