In 1999, Asia accounted for 38% of global copper demand. Today, the figure is 62%. In 1999, China consumed 4.5 million barrels of oil per day. Ten years later, that had increased to 8.6 million barrels per day.
On the London Metal Exchange (LME), 25% of trades in its highly popular three-month zinc contract now take place between 1am and 7am, an Asian time-slot that only became available four years ago.
Standard Chartered chief executive Peter Sands explained recently that the bank had recruited 7850 people between September 2009 and September 2010, more than 80% of whom were in Asia.
And on a single day earlier this year, 47% of global copper trades took place on the Shanghai Futures Exchange (SHFE) against 42% on the London Metal Exchange (LME).
Shift to Asia
Whatever statistics you care to look at, the facts are plain - Asia has become the nexus of demand for commodities and is likely to stay in that position for many years to come.
"China accounts for between 35% and 50% of global metals consumption. Even more importantly, it is responsible for more than 75% of consumption growth," says Ray Eyles, head of JPMorgan's commodities business in Asia.
"Currently, most people are focused on China but, over time, attention will shift to India, which has a very big infrastructure story in the long term," he adds.
The rationale behind the surge in demand is well-known - economies across Asia are growing rapidly, prompting an enormous need for a wide range of commodities, particularly industrial metals, used for construction, and oil, for energy.
"Unequivocally, demand is moving East for resources including oil, liquified natural gas, coal, base metals, pulp, paper, steel, even gold, platinum and palladium," says Roger Jones, global head of commodities trading at Barclays Capital. "From a fundamental perspective, this is a verifiable fact."
Demand for soft commodities, such as sugar and wheat, is less intense now but is likely to speed up as more Chinese and other Asian communities become wealthier, eat Western-style food and adopt Western patterns of consumer behaviour.
How to respond
For producers, bankers, traders and even exchanges, the shift in demand prompts one, key question: how to respond to growth in the East.
Producers have to maintain a core presence close to the source of production, be that Latin America, central and eastern Europe, the Middle East or Australia. But even they see the need to develop relationships on the ground with their customers.
"Oil companies from Brazil, Russia and the Gulf are setting up here, so as to be close to their clients," says Singapore-based Olivier Godin, head of commodities markets in Asia for Société Générale.
Andy Gooch, global head of commodities at French corporate and investment bank Natixis, agrees. "Producers see the demand market has changed so some of them are focusing on how they can get what they produce further afield. They are investing in the supply chain," he says.
For bankers and other financial players, the situation is arguably more complex. They know that end demand is to be found in Asia, particularly China, but that does not necessarily mean trading activity is focused in the region.
China accounts for between 35% and 50% of global metals consumption. Even more importantly, it is responsible for more than 75% of consumption growth
"While there is an upsurge in demand, what this translates into in terms of derivatives flow and spot market activity is slightly different. Asian counterparties tend to look at long-term supply, so in terms of share of the commodities wallet, Asian activity is less pronounced than Europe and the US," says London-based Mr Jones.
Edward Meir, New York-based senior analyst at derivatives broker MF Global, agrees: "In theory, it sounds right that as demand moves East, banking business and trading should move East too. The problem is that the exchanges on the ground do not have the same mass following as the US and European exchanges."
"The West offers political stability, liquidity and freedom of movement on the currency front. China is much more restrictive," he adds.
This is undeniable. The renminbi is tightly controlled and some bankers are wary of the power of the state in China. In 2009, for example, there were widespread reports that Chinese regulators were prepared to let state-owned enterprises walk away from loss-making commodities contracts.
"There needs to be a clear understanding of what can and can't be done from a legal and regulatory perspective," says one banker.
There are other obstacles too. The SHFE is only open to domestic registered companies and trades in the renminbi, not the dollar. And, while volumes are rising at a brisk pace, Western exchanges, such as the LME, Comex, Nymex and ICE, still dominate activity in the oil and base metals markets, in terms of numbers of contracts traded, complexity of contracts traded and price discovery.
Even Singapore and Hong Kong, which have openly expressed their desire to be commodity hubs, are dwarfed by London, New York and Chicago.
"If you can already trade on ICE, Nymex or the LME, what is the advantage of Singapore? If it is really going to develop and challenge existing exchanges, it has to offer something different. There needs to be a hook," says Mr Gooch.
Ray Eyles, head of JPMorgan's commodities business in Asia
No denying change
But even those who question the ability of new centres to control price discovery admit the world is changing - and fast. The LME opened its doors in London more than 130 years ago and set up its first office outside the City of London six months ago - in Singapore.
"We arrived here in the nick of time. This is where everything is happening for industrial metals. Of course, you can speak to people in Asia from London but there is no substitute for dealing with people face to face, in their time zone," says Liz Milan, managing director for the LME in Asia.
"We need to monitor what is going on in China and it's important for us to show that the prices we are discovering are global benchmarks," she adds.
Interest in metals trading is not just restricted to end consumers either.
"There is a huge amount of wealth in Asia and a vast investment pool of people who want to put their money into something tangible, something they can see, such as metals," says Ms Milan.
LMEselect, the LME's electronic trading platform, offers graphic evidence of Asian interest in commodities trading. "Volumes have increased exponentially between 1am and 7am London time over the past two years," says Ms Milan.
Many banks have reached the same conclusion as the LME: they need to be in Asia because it is the fastest-growing customer base in the world.
"You need to be here in order to fully develop the client relationships and cultural synergies," says Mr Eyles.
European or US-based bankers may not be in Asia full-time, but many substitute complete relocation with frequent trips East.
"I am out of the US for most of the next five weeks seeing clients, more of whom are in Asia," says Jeffrey Christian, managing director of commodities specialist CPM Group in New York.
Many argue that Western companies can find it very difficult to understand exactly what is going on in China without a presence there. "Developments can take place but if you don't visit and see what is happening on the ground, you can be months or even years out of date, particularly as things happen so quickly there," says Maartje Collignon, senior consultant at London-based research group CRU.
Influential position
Most financiers accept that London and the US still take the lead in price-setting but there are no grounds for complacency. Influence is shifting and some believe Asia is already beginning to set prices - or least heavily influence their direction.
"Europe is becoming a price-taker as Asia becomes the price-maker," says Société Générale's Mr Godin.
"It used to be the case that activity was entirely focused on the late afternoon, when London started trading. It is still quieter early on but it is getting much busier. Clients want to trade in their own time zone and they are increasingly prepared to manage their risks along those lines," he adds.
Even some of those based outside Asia concur with this view.
"Although Asian bourses are still smaller than the LME and Nymex, the gap is narrowing. If this trend continues, Western markets will become increasingly less important and many banks have already anticipated this by moving their commodities desks to Asia," says Eugen Weinberg, commodities analyst at Commerzbank.
Most commodities contracts predate the rise of Asia by several decades. But some are relatively new and in this field, the influence of the East is even greater.
"The spot market in iron ore is in its infancy and because it is young, it has been developed out of Asia. For commodities such as iron ore, coal or ferrochrome, the reference prices are moving to the delivered China price," says Colin Hamilton, senior analyst at Australian investment bank Macquarie.
"And the people are moving as well, particularly for commodities that are produced in the Pacific Basin. Our iron ore desk moved to Singapore, for instance," he adds.
We arrived here in the nick of time. This is where everything is happening for industrial metals
There is also the view that the increasingly harsh regulatory environments in Europe and the US are driving banks to Asia.
"As we get a clearer picture of the regulatory environment in the West, it becomes increasingly concerning, and this may well encourage people to move commodities business to Asia," says one banker.
Market optimists are hopeful that, ultimately, the regulators will be pragmatic, rather than dogmatic. Indeed some bankers are more concerned about the regulatory environment within China.
Liz Milan, managing director for the LME in Asia
"Market activity will only really take off in Shanghai if and when the regulatory environment there changes," says Mr Gooch.
Joining forces
In the meantime, East and West could be said to be working together. The LME has set up a joint venture with the Singapore Stock Exchange, which could be followed by similar schemes if successful. Financial Technologies India (FTI) is trying to create a global electronic trading platform, linking exchanges such as Dubai, Singapore and even Mauritius but trading off LME prices. And Ms Milan at the LME says she welcomes activity on the Shanghai exchange, because it encourages arbitrage, therefore boosting volumes in London too.
Over time, this may change. As CPM's Mr Christian points out: "Middle Eastern oil producers are beginning to question why they are selling Saudi Light to China using a price set in Oklahoma in dollars. ICE and Nymex are still dominant but Dubai and Shanghai are growing in influence."
For now, prices, deals and financing are predominantly set or arranged in the West. But, as China's economic growth continues and other Asian economies move into first gear, Western exchanges and Western financiers will have to work increasingly hard to maintain their edge. Those who succeed will doubtless benefit from Asia's growing influence. Those who sit complacently in London and New York almost certainly do so at their peril.
