Commodities market to remain volatile in 2008
(DENNIS B MALLARI)
Last year was volatile for the international commodities market. Dr David Rutledge, CEO of Dubai Multi Commodities Centre (DMCC), spoke to Emirates Business about what this year has in store and believes it will be full of just as many challenges and pitfalls as last year. He also shared the centre’s growth strategy and says industry associations are the best way to help Dubai’s market mature and prescribe to international best practices.
Dr Rutledge (pictured above) joined DMCC in February 2003 as executive director, commodities.
Since December 2004, the Australian has been the CEO, responsible for the overall management of DMCC’s activities in the commodities, precious metals and diamonds sectors.
Rutledge has been instrumental in the development and management of Dubai’s multi-commodities exchange – the Dubai Gold and Commodities Exchange – and holds the position of chairman. He is also the chairman of the Dubai Diamond Exchange.
Before coming to the UAE, he held various positions, such as managing director of Zurich Capital Markets; chief executive of Sydney Futures Exchange; chief executive of the Queensland Sugar Corporation, vice-president and chief economist at the New York Comex Exchange and senior vice-president, market development, New York Board of Trade.
He holds degrees in economics and statistics from the University of Sydney and Stanford University, including a PhD from Stanford.
What is your outlook for the multi-commodities market in the UAE for 2008?
We are in interesting times in terms of the international market, especially the financial market. And as the commodities market is very closely linked with other financial markets, 2008 will probably be a volatile year for the commodities market, too. The volatility that we have seen in 2007 will continue.
That will make trading conditions generally challenging for many players. And on the Dubai Gold and Commodities Index (DGCX) that volatility will translate into increased trading activity and volume. So on the whole it will be an interesting and challenging year.
How was 2007 for the DMCC in terms of growth, export and import volumes?
We have witnessed all round growth. Companies that are registered with us now number more than 1,100. We have also seen continued growth in activity in the products and markets that we directly service, such as the Dubai Diamond Exchange, the commodity receipts and the DGCX.
The total trade in rough diamonds in Dubai reached Dh4 billion in the third quarter of 2007. This was 31 per cent higher than the same period in 2006. In the third quarter of 2007, rough diamond imports into Dubai reached Dh1.64bn, an increase of 32 per cent from the third quarter of 2006. Exports reached Dh2.35bn, a 30 per cent increase from the same period in 2006.
The gold trade through Dubai reached Dh19bn in the third quarter of 2007, an increase of 55 per cent over the same period in 2006. In the third quarter of 2007, a total of 174 tonnes of gold was imported into Dubai, 47 per cent higher than the 118 tonnes in the same period in 2006. Also in this period, a total of 68 tonnes of gold was exported from Dubai, 28 per cent higher than the 53 tonnes in the same period in 2006. So 2007 was definitely a good year for us.
What measures has the DMCC taken to support domestic and international efforts to combat money laundering?
We have a full-time financial compliance office here at the DMCC, which focuses specifically on the issues of possible money laundering activities. Our primary approach to this problem is to thoroughly vet the people who apply to establish companies with us. We also put them through rigorous processing procedures through our compliance office. Also, when the licenses come up for renewal each year, we do a very thorough review of their activities throughout the year.
In 2007 we provided our companies training to help them understand what they should be looking out for in terms of illicit activities when dealing with different parties. We have also maintained a very close relationship with the Central Bank of the UAE on this issue as it is the regulatory body here.
How far have the foreign banks and government agencies assisted you in combating money laundering?
When someone applies to us we do take banking references from foreign banks. But we don’t have any direct dealings with foreign government agencies. We just co-ordinate with the UAE Central Bank.
How far are you from your goal of becoming a globally recognised leader in providing innovative market-driven infrastructure for the multi-commodity sector?
In one sense we are not very far from our goals, as we have achieved them to some extent. But obviously there is a lot to do as the markets continue to evolve and we continue to move into new projects and new areas.
So in that sense we will continue to make a lot of progress in 2008, but I think we are certainly on track to achieve our objective. We already have a few initiatives in the pipeline, but right now we can’t go public with them. In 2008 the market will surely see a number of new concepts and ideas coming out of DMCC.
How effective has DMCC been in promoting regional industrial growth?
Look at the gold and jewellery sector. We can make our strongest claim in that area as we have two gold refineries and jewellery manufacturing facilities in the DMCC free zone. In other areas we are more involved in facilitating the development of marketing strategies. So our link to industrial growth is subtle and a bit difficult to quantify.
What are your core growth strategies?
We have a two-fold growth strategy. The first is to take the projects that we have already initiated and consolidate and reinforce their relevance in the market – such as the exchange products and the commodity and gold receipts and the services that we offer through the Dubai tea-trading centre.
We make sure they grow with the market here. We also continue to work on new projects where we can add value to the market participants’ activities in the commodities sector. So we consolidate and continue to expand the projects and activities we are involved in on a selective basis.
Where do you see DMCC five years down the line?
For one, we will be well and truly established in our new office complex at the DMCC free zone this year.
It will give the DMCC an added sense of identity as an organisation, which we don’t quite feel at the moment as we are scattered in various office complexes.
Also, five years down the line a number of projects we have already launched will be mature and well developed and our products will be recognised in the market place. At the same time, new projects and new products from us will be coming into the market.
What are the major challenges that DMCC will face in 2008?
The biggest challenge will be to properly filter the number and range of new projects and products we have on our plate at the moment. We have quite a few interesting and exciting projects brought to us by people every week, but we can’t do them all.
So we have to have a rigorous screening process. That’s a challenge. The other challenge is to convert ideas we have into commercially viable projects.
What do you think needs to be done to establish international standards and best practices here?
On our part I think we have made good progress. Our direct involvement in this has been primarily in the gold sector, where the Dubai system has set the standards for gold refining. We are doing similar things in all sectors. In the diamond sector, which is a rapidly growing market here, the International Diamond Laboratory was set up in October 2007 and for the first time in the region, diamond certificates were issued in Arabic.
In the tea sector, too, we are working with the industry to establish global standards.
We are also supporting industry associations wherever it is relevant, because we believe if we have to embrace international best practices, then it will only work if it is embraced by the participants of the industry of their own free will, instead of being forced upon them. And industry associations are the only way to do that.
Increasingly, Dubai is coming of age in terms of compliance with global quality and behavioural standards. That is an important step to be undertaken.
When is the next Vision of Dubai coin coming out and what icon of Dubai will it feature this time?
It will surely come out this year but we can’t reveal when and what icon it will feature as yet.
To what extent have currency fluctuations hit trade volumes in the commodities market?
Currency fluctuations do have an impact. There is no doubt about it.
In one sense volatility in currency means more volatility in the commodity prices. They are the two sides of the same coin.
To that extent there has been greater trading activity on the exchange in Dubai and on global exchanges. In terms of the impact on the physical commodity activity, the reality is that fluctuations inhibit growth and commodity trade.
But Dubai’s economy is growing fast and import of raw materials such as steel and cement continues at a frenetic pace because of the level of economic activity here.
I feel that notwithstanding the currency fluctuations, 2007 saw rapid growth in terms of commodity trading and we should continue seeing that in 2008, too.
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