Commodities brokerage ICAP plans to expand its dry bulk and energy desks in Asia to capture a likely increase in trade volume with the launch of futures contracts in the region, two senior company officials said.
ICAP is going against the tide in Asia as brokerages, including rival Newedge, have downsized in the past few years as trade volumes slumped after the introduction of capital rules that prompted banks to cut back on certain trading activities.
Brokers are also losing some of their revenue to electronic trading platforms on exchanges such as Intercontinental Exchange.
ICAP, the world’s largest interdealer broker, has 30 staff serving Asian clients from its Singapore and London offices and could increase that number by about a third this year, George Dranganoudis, managing director at ICAP Energy Asia Pacific, told Reuters.
“Singapore, or Asia energy, is going against the overall ICAP trend,” he said, referring to wider restructuring efforts at the company.
One of its priorities in 2015 will be to start an office in China to be ready for the launch of a Shanghai crude oil futures contract, Dranganoudis said.
In Singapore, the company plans to start a liquefied petroleum gas (LPG) desk as Asia is importing more products from the United States, he said, due to the shale resources boom. ICAP will also rebuild its middle distillates and crude teams, which have seen departures in recent years.
ICAP is also expanding its dry bulk division, which could capture trade from various iron ore and coal contracts launched by exchanges in Singapore, Hong Kong and China.
“There seems to be a birth of multiple contracts which are vying for traction on various exchanges and it’s fairly fragmented in Asia,” said Alex Newman, ICAP’s head of Asia-Pacific iron ore and coal.
“Over time, it will become clearer for us which will gain traction and where we’ll direct our resources.”
The contracts include Singapore Exchange’s ASEAN hot-rolled coil steel and Dalian Exchange’s coking coal futures, he said, adding that the team hoped to do more business in thermal coal in Asia as well.
A supply glut in oil and iron ore has depressed prices to their lowest since 2009, leading traders to have a shorter horizon when hedging, the executives said.
“The drop in value happened very quickly and very sharply and I don’t think many have hedged a large chunk of their forward production or consumption,” Newman said.
“Many of the producers will probably step back at these levels and a number of utilities will probably step in and look at what they can secure.”
In oil, more hedges are being done for 12 to 18 months ahead instead of three to four years previously, Dranganoudis said.