Economist: Credibility of mineral and commodities exchange determined by liquidity
Jakarta (ANTARA) - Economist at the Center of Reform on Economics (CORE) Indonesia, Yusuf Rendy Manilet, has said that trading liquidity is the main factor determining the credibility of the Mineral and Strategic Commodities Exchange, which is targeted to begin operations in January 2027.
Yusuf, when contacted in Jakarta on Sunday, said an exchange can only produce a trusted reference price if it has sufficient market depth so that prices are not easily influenced by a single party.
For that reason, he said, the success of the exchange needs to be measured by how much physical trading of commodities such as nickel, coal and palm oil actually takes place on the exchange in the first two to three years of its operation.
He said the experience of the Indonesian CPO (crude palm oil) Exchange, which has been running since 2023, can serve as a lesson.
According to him, when Indonesian CPO prices remain below the Malaysian and Rotterdam reference prices, this indicates that the domestic market is not yet deep enough to produce a price trusted as a reflection of the commodity’s value.
“If this condition repeats, the exchange will be seen more as an administrative obligation than a place for price formation,” he said.
In addition to liquidity, he said the credibility of the exchange requires adequate physical market support.
That support includes the availability of certified warehouses and storage facilities, quality standards recognised by international buyers, clear delivery points, and a clearing institution with sufficient capital and guarantee funds.
In this way, prices formed on the exchange must be able to be connected to physical commodity transactions and delivery.
He also said an exchange can only become a price reference if the prices formed are used in international contracts. For that, foreign buyers and traders need to be able to participate and conduct hedging with regulatory certainty.
To maintain credibility, he also reminded of the importance of separating the roles of the exchange owner, clearing manager, regulator and state trading actors to prevent potential conflicts of interest.
According to him, this aspect is one of the reputational risks that needs to be considered from the start of the Mineral and Strategic Commodities Exchange’s operation.
The government is targeting the Mineral and Strategic Commodities Exchange to begin operations on 1 January 2027 as an instrument to strengthen Indonesia’s position in price formation for strategic export commodities.
Through the exchange, the government will build the Indonesia Reference Price as a national reference price for a number of leading export commodities.
The exchange is also targeted to create a deeper, more transparent and more liquid market capable of bringing together producers, farmers, exporters, buyers and investors in a single trading ecosystem with open and credible transaction data.