Chinese metals traders have opened offices and hired top talent in the Asian financial hub of Singapore over the past year, aiming to capture opportunities created by the exit of a string of Western banks from the global commodities trading business.
China has long sought more pricing power in commodities as it is the largest consumer of many resources, including copper and iron ore, but does not produce enough and must import at global prices. Mainland firms are now aiming to cut out middlemen and connect with a wider array of producers and users.
As Western banks have ditched their commodities divisions due to mounting regulatory costs after the financial crisis, Chinese trading firms have seized the chance to build their trading muscle in the international hub right at their doorstep.
Chinese firms backed by sprawling metals conglomerates, including top mainland trading house Maike Metals Group, are among those that have set up a base in Singapore.
Awin Resource International, owned by a Chinese billionaire, and Kyen Resources, backed by four mainland firms active in the metals industry, have launched offices in the city-state over the past one year.
While the Chinese metals trading firms in Singapore will face stiff competition from established traders such as Glencore and Trafigura, analysts expect them to be able to profit from their mainland connections.
The firms will be able to procure for themselves and exploit pricing gaps between China and global markets. They will also be able to use their home-ground advantage to connect Chinese buyers with sellers in South East Asia and other regions, financed by banks in Singapore.
"There are some significant Chinese traders, and they're definitely moving more of their business overseas. They have size and capital to compete, certainly versus regional players," said Ivan Szpakowski, Citi commodities strategist in Shanghai.
The Chinese firms are looking beyond the staple arbitrage trades that rely on interest rate differentials, leveraging instead their shareholder heft to build their business. And they have hired specialist physical metal traders for the purpose.
Awin, for instance, has taken on former Xstrata employees Felipe Williams, who is now Awin's head of base metals, and Javier Gausachs as head of mergers and acquisitions. It has also hired a senior trader from Louis Dreyfus.
A unit of Amer International Group, Awin now has 30 staff in Singapore compared to just one a year ago. Amer is owned by Wang Wenyin, one of the 20 wealthiest people in China with a net worth of around $5 billion, according to Forbes.
The firm is targeting growth through acquisitions, particularly to build its copper supply, a person familiar with the matter said. The company declined to comment.