Feb. 15 SINGAPORE (Dow Jones)--The Singapore Exchange (S68.SG) Tuesday launched base metals futures in conjunction with the London Metal Exchange, seeking to capture a bigger share of the growing regional commodities market.
The move comes at a time when SGX is in the midst of merger talks with the Australian Stock Exchange to create an Asia-Pacific bourse of global scale, in line with the current trend of exchange consolidation in other parts of the world. SGX already owns the Singapore Commodity Exchange, or Sicom.
Brokers and traders said early response to the new contracts has been positive. March LME-SGX futures traded at a record price of $10,195 a metric ton, with respectable volumes changing hands, they said.
"We are encouraged by the steady volumes at the start of trading. This is a timely product to be launching in Asia and we're hopeful that market interest and participation will continue to grow," LME Asia Managing Director Liz Milan said.
LME-SGX recorded 338 lots of copper, 330 lots of aluminum and 308 lots of zinc traded by 0720 GMT, the end of the first session.
With copper prices at record levels, it was a good time to launch the contracts, although many potential participants are still on the sidelines, brokers said.
"It is too early to make any judgement as it is the first day. We do have clients that are enquiring about prices but there's still caution about actually doing trades," said Avtar Sandu, commodities manager at Phillip Futures in Singapore.
LME-SGX's cash-settled futures contracts, in lot sizes of five tons, are expected to particularly appeal to smaller investors who find LME's 25-ton lots too expensive in the current high price environment.
As well as institutional investors, the smaller contract size is intended to attract retail investors and give small- and medium-sized businesses that currently don't participate on the LME the ability to hedge metals exposure.
A metals market participant in Shanghai told Dow Jones Newswires the new contracts may also be popular with China-based arbitrage traders, as the five-ton lot size matches with Shanghai Futures Exchange metals contracts.
Shanghai copper is currently trading at a discount to LME prices, so at the moment this won't be a factor helping the new contracts gain traction.
There is also the possibility of arbitrage with existing LME contracts, with participants likely to take advantage of any significant price divergence.
LME-SGX May copper closed at $10,163/ton, a premium to the equivalent LME three-month contract, which was at $10,090/ton on LME Select.
The LME contract was down $70 since Monday's kerb, after hitting a record high of $10,190/ton earlier in the session.
SGX announced three market makers for the new LME-SGX contracts--U.S.-based GS Energy Partners LLC, Australia-based Susquehanna Pacific Pty Ltd and a market maker from Asia Pacific that it didn't name.