Investment

Nomura pins hopes on surging China commodity demand

By Yee Kai Pin and Kim Kyoungwha (China Daily)
Updated: 2010-08-05 14:42

SINGAPORE - Nomura Holdings Inc plans to boost commodity trading in Asia, betting China will lead a global revival in demand for iron ore, coal and metals.

"We'll significantly expand our commodities presence over the next 12 to 18 months," Sean Brecker, Nomura's head of commodities trading in Asia excluding Japan, said in an interview in Singapore on Wednesday, without giving further details. "We expect Asia ex-Japan to be a major engine for growth over the next decade."

Iron ore may lead an increase in demand for resources in the coming year, similar to coal's rally in 2006 to 2007, he said. Concern over the pace of recovery in the United States and Europe will cap oil and gold at least into 2011, he said.

Prices of exchange-traded commodities such as crude and copper have stalled this year amid speculation economic growth may falter. Oil is up 3.7 percent in New York, after surging 78 percent in 2009, while copper in London has gained 0.7 percent, compared with 140 percent last year. Gold is up 8.5 percent so far this year.

"There's been a lot of buzz about iron ore, a market that has moved away from long-term, price-negotiated contracts into more of a spot market," Brecker said. "It looks and feels a lot like the coal market did a few years ago and we've seen how the market for coal derivatives has taken off."

Banks and trading houses including Standard Chartered Ltd, Australia & New Zealand Banking Group Ltd, Citigroup Inc, Noble Group Ltd and Trafigura Beheer BV are hiring traders in Singapore amid rising demand in the region for commodities.

Hiring, acquisitions

Nomura hired Shaun Lim in June from Barclays Capital as head of crude and oil-products trading for Asia excluding Japan. In February, the company bought Nexen Inc's European business, a power and gas physical-trading operation. It already offers hedging in oil, energy, precious and industrial metals, agricultural products and commodities like carbon and uranium.

The company entered the commodities business in June 2007 by forming an alliance with Sydney-based Macquarie Bank Ltd. It dissolved the partnership after the acquisition of Asian units Lehman Brothers Holdings Inc in 2008.

Brecker moved to Nomura as part of the deal with Lehman, which he joined in 2003 in London before relocating to Singapore in 2007. Prior to his Masters of Business Administration from Wharton School of the University of Pennsylvania, he served as a credit research analyst at JPMorgan Securities in New York.

Nomura recommends buying platinum versus gold as car sales in China, the world's biggest auto market, bolster demand for the metal used in catalytic converters. China's State Information Center estimated car sales will increase 17 percent this year to 16 million.

China 'robust'

"Among major commodity-consuming economies, the strongest growth appears to be coming from China, and the demand-side picture for copper and iron ore from China looks very robust," Brecker said in the July 29 interview. Still, any slowdown in US and European economic recovery may have "a knock-on effect" on China in the short term, which could sap demand for commodities, he said.

Coal prices in Newcastlesurged 41 percent in 2006 and 73 percent in 2007 as China stepped up purchases to meet demand for electricity.

Iron ore isn't traded on exchanges while volume for Central Appalachian coal contracts in New York was about 480 in June, compared with more than 600,000 for crude, according to CME Group Inc.

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