“ASIA – The Emerging Benchmark in Commodities” By: Shiva Aithagoni, 09953701113
ABSTRACT The future could be the past. The Silk Route, an ancient trade route for goods of all kinds between merchants, nomads and urban dwellers from Ancient China, Ancient India, Ancient Tibet, Persian Empire and Mediterranean countries which continued for almost 3000 years is back in a rejuvenated form. Unlike the old times it is not about handful of commodities such as silk or spices but by wide variety of highly fertile grounds suitable for growing cash crops and specialty crops and countries that hold some of the world‟s largest shares of several minerals. The rise of Asia has significantly changed the global commodities market. As the largest consumer of metals, Asia now dictates global prices, and its influence is not merely limited to metals. The commodities derivative market is also evolving at an unstoppable pace. As the US and Europe introduce regulatory changes limiting speculation, a new order is emerging in Asia where more commodities derivatives are available on regional exchanges. It is not to say that it‟s all hunky dory. Most of the Asian countries have some chequered history in commodity markets. Whether it is China‟s closing down of dozen‟s of exchanges in late 90‟s or India‟s trial and error method with some of the key commodities. For Asia to become emerging benchmark in commodity markets, it has to overcome problems with availability of trade & commodity finance, slow pace of reforms and confining exchanges to only domestic players. Each country has its own method and pace for solving this problem but countries should work co operatively at a regional level to solve some of them. For example working establishment of a regional trade finance database to facilitate information exchange and share experiences Asia has many strengths including being the production house of many commodities and growth of consumption of two Asian giants but Population of more two billion who help to increase consumption also stand in the way when it comes trading in essential commodities such as rice and wheat .Many newly setup exchanges are fighting their way up leveraging their geographical and other advantages. They are introducing many new and innovative products to tap the markets in Asia. In the end you can say that journey has started and only time will decide its pace.
HISTORY OF COMMODITY TRADING IN ASIA It is believed that the commodities trade had its genesis in Sumeria, a region in modern day Iraq. Animals were the first commodities, which were traded between individuals. Those days‟ commodity contracts were carried out using clay tokens as medium of exchange. Slowly as time progressed, the commodities trade expanded and existed between different Asian nations. For instance during the first half of the second millennium India and China had trading arrangements with Southeast Asia, Eastern Europe, certain Islamic countries and the Mediterranean region. Later on, the advancements in shipping and other forms of transport had facilitated the growth of trade in this segment. The unification of the Eurasian continent by the Mongols in the 13th century led to a wide transmission of people, ideas and goods. Later on the Black Death of 1940s, a killer plague that reduced the population of Europe and Middle East by one-third, has resulted in more per capita income for individuals and thus increased the demand for Eastern luxuries like precious stones, spices, ceramics and silks. This has augmented the supply of precious metals to the East. This entire scenario resulted in the increased reliance on Indian Ocean trade routes and stimulated the discovery of sea route to Asia. The volume of commodity trading in Asia increased significantly after the discovery of sea route to Asia by European voyagers and explorers. The Old and New Worlds were connected by sea. With the discovery of Manila in the year 1571, trade linkages were formed between...
References: UNCTAD Report: Trade and Development Implications of Commodity Exchanges UNCTAD Report: Market access, market entry and competitiveness Commission on Trade in Goods and Services, and Commodities Allegro Report : hedging commodity risk Report Commodity Futures Market in India : By ICICI Trade Finance Division Trade Finance Infrastructure Development Handbook for Economies in Transition Financing the Agri value chain -knowledge is key : Report by Rabo Bank
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