Viet Nam plans to launch a new commodity exchange in the fourth quarter of this year, according to a Memorandum of Understanding signed between the Singapore-listed logistics firm Straits Financial Group and the Viet Nam Commodities Exchange (VNX).— Photo vnex.vn

HA NOI (Biz Hub) — Viet Nam plans to launch a new commodity exchange in the fourth quarter of this year, according to a Memorandum of Understanding signed between the Singapore-listed logistics firm Straits Financial Group and the Viet Nam Commodities Exchange (VNX).

The memorandum is expected to create a bridge connecting the local commodities market with overseas ones, improve the country's commodities trading and reduce risks for local producers.

The commodities exchange will run from Monday to Friday and determine the price of commodities via bidding orders, reflecting the extent of supply and demand at any specific moment. The price will be set by the trading order with the largest trading volume.

"The commodities exchange will give insurance to local enterprises and farmers to minimise the risks in their production, such as the volatility of prices," said Nguyen Duy Phuong, director general of VNX.

In addition, the exchange will provide export companies with accurate numbers on global commody prices by product type and monthly futures, enabling them to adjust their business and production plans accordingly, he said.

Though it has become necessary for Viet Nam to have a commodities exchange, the marketplace has remained inactive and gloomy.

In 2010, the Ministry of Industry and Trade certified the Viet Nam Commodities Exchange as the first commodities marketplace in the country. Three years later, the Info Commodities Exchange was set up but now is closed.

The Buon Ma Thuot Coffee and Commodity Exchange is another one that has not been working since it was established in 2011.

The Ministry of Industry and Trade gave two certificates to the Info Commodities Exchange in 2013 and Viet Nam Commodities Exchanges (VNX) in 2010, however, only VNX still exists.

Economist Dinh The Hien said that most producers and investors were not used to trading commodities on the exchange, plus Vietnamese farmers and enterprises still traded directly with brokers rather than through commodities exchanges.

Local enterprises are often limited in access to lending sources, they have to sign loan contracts with banks using their farming products as guarantees and therefore, they lack sufficient amount of available product to conduct trade orders on the exchange, he said.

In order to make commodities trading more efficient, the Government should improve the legal framework to allow local exchanges to link with international ones and allow foreign investors take part in the local commodities market, Hien said.

The Government needs to improve the working mechanism of local commodities exchanges because it is not sufficiently clear to local enterprises, that do not understand how they can benefit from the trading, Do Ha Nam, Vice Chairman of the Viet Nam Coffee and Cocoa Association, said.

Additionally, the cost of joining the commodities market is high and firms are thus not interested, he said.

"Vietnamese enterprises need a clear, practical policy from the Government to increase confidence in the local commodities exchange," Nam said. — VNS