Death knell sounded for Asia's only coffee contract

Death knell sounded for Asia's only coffee contract

SINGAPORE (AFP): Two years after its high-profile launch,
Asia's sole coffee futures contract is on its death bed amid poor
support from traders whose links with liquidity driven Western
exchanges are firmly rooted.

But the Robusta Coffee Futures contract traded on the
Singapore Commodity Exchange Ltd. (SICOM) would not be scrapped,
a top exchange official said as he left open the question of
resuscitating the contract.

"We wonder why they (SICOM) just don't want to throw in the
towel and give up," a Singapore-based foreign coffee trader asked
after the Robusta contract went untraded last Friday.

Amid much fanfare and promise, the contract was launched in
March 1995 to cater largely to Asian producers of the aromatic
Robusta beans. The Arabica is the other popular coffee variety.

Most Asian traders and producers said they bypassed the
Singapore exchange to book their deals on the London and New York
coffee markets where high turnover made their deals more
competitive.

SICOM's direct rival is the London International Financial
Futures Exchange (LIFFE), a magnet for Robusta trades throughout
the globe. The New York Coffee, Sugar and Cocoa Exchange is
popular for Arabica coffee deals.

According to SICOM figures, a daily average of 296 lots of the
Robusta contract were traded in March, a figure which pales in
comparison to the estimated 3,000 to 4,000 Singapore-equivalent
lots traded in London.

"If you don't have about 2,000 lots a day, the market can't
attract funds, " a dealing manager with a Singaporean futures
trading house said.

But SICOM seems bent on maintaining the Robusta contract.

"We have no plans to delist the contract and of course, if
there are opportunities for us to look at ways to re-activate the
contract, we will definitely look at them," Lim Toh Eng, SICOM's
general manager, told AFP.

Lim could not say for sure whether steps would be taken to
breathe new life into the contract. "This is a policy issue," he
said.

SICOM has sent special missions to the United States, Europe,
Indonesia, Japan and India to promote the contract.

"We are pushing forward. While recognizing the difficulty for
coffee, we have to take into consideration Singapore's larger
role of becoming a center for commodities futures trading," Lim
said.

Indonesia and India have expressed interest in launching
coffee futures trading despite the lack of market interest in
Asia, dealers said.

Traders said the only way out for SICOM was to link with
Britain's LIFFE to trade the Robusta coffee contract during the
Asian time zone.

By being LIFFE's flagbearer in Asia for the Robusta coffee
contract, SICOM can cater to the need for hedging of positions
when the London market is closed, they said.

Industry officials said Asian Robusta coffee, accounting for
640,000 tons or 47 percent of the world's Robusta production of
1.35 million tons, was becoming more significant.

"In a few years, the region will account for 50 percent of
world production and the need for hedging will rise too," an
official said.

Asia's top coffee producers are Indonesia, Thailand and
Vietnam.

Traders also expect Robusta coffee prices to move up and
reduce the wide gap with the more expensive Arabica variety over
the next three to six months.