Vietnam Commodity Exchange: opportunities from a billion-dollar market

Nguyen Duc Dung

The Vietnam Commodity Exchange, the first of its kind in Vietnam, became operational in 2010, but the operation results felt below expectations. Are there any differences in the new commodity exchange model?

There is not a major distinction. The largest difference at present is that the open spirit of the newly-introduced Decree 51 would help the exchange do more things than it could before, such as interconnecting Vietnamese and global commodity exchanges.

In fact, like the stock market, the development of the commodity exchange depends on buyer and seller participation.

In principle, taking on hedging tools means the investor transfers risk to other people. For development, besides buyers and sellers, the market needs the involvement of other players such as speculators, hedging funds, and so on to boost market liquidity.

This explains why we need interconnections to attract more players to participate in market transactions. In addition, interconnections through the Commodity Exchange will help boost the trade of local exporters, especially when their products have been standardised to meet the exchange’s set requirements.

In reality, many transactions of Vietnamese agricultural produce and raw materials took place on a negotiated price basis. Things might seem smooth to the Vietnamese side, but in fact this is a total disadvantage in terms of the price factor because right from beginning the products do not follow any set standards.

How will the Vietnam Commodity Exchange support participants, such as the exporters, if their products satisfy the standards set?

In the future, the Exchange will be developing under the all-in-one model. It will not only be a place for common commodity transactions, but a place to bring together either payment intermediaries or diverse services providers serving international goods transactions.

This will help optimise the exchange operation process when shifting goods from the sellers to the buyers as through information on the commodity exchange the sellers can pick the suppliers offering the most suitable fee level, thus reducing the burden on the exporters who needed to take care from A to Z in the past.

This is also the model international commodity exchanges have been applying. At the inception, the Commodity Exchange will help exporters handle the procedures related to logistics, warehousing, and import-export. These operations, however, will be handled by specialised companies later on.

At the recent launching ceremony of the Vietnam Commodity Exchange you said that some of the advantages of the exchange are enhanced hedging and reduced price manipulation. Could you elaborate?

As I have said, when businesses present products which fulfill international technical standards, this means there is a hedging for their products to minimise the risk of price manipulation during international trade.

As transactions might number millions of orders every hour, or even second, nobody will have time for price manipulation as transactions take place continuously around the clock.

As of now, about two million contracts were executed every year through the exchange though the Commodity Exchange still remains underdeveloped. The figure might be incremental in the future when e-transactions take hold.

In addition, in the future, in the face of increasing product diversification and when the Commodity Exchange has developed to a certain level cross-hedging among the traded commodities might take place between the sellers and the buyers to reduce the implications of price volatility.

For instance, with plastic resin, as the product comes from crude oil, if hedging was allowed between these two products, the sellers and the buyers could reach a suitable and lucrative price level, from there boosting production.