Opening of Korean Commodities Exchange Eyed in 2011

The opening of a commodities exchange in Korea is being eyed for 2011 at the earliest to promote transactions of commodities such as gold and raw materials.

In an emergency economic meeting yesterday, Strategy and Finance Minister Yoon Jeung-hyun asked each ministry to cooperate in helping to set up Korea’s version of the Chicago Mercantile Exchange.

Established in 1848, the Chicago Mercantile Exchange is responsible for 80-85 percent of the world’s futures trading of grain. Japan and China are also operating similar exchanges and commodity trading markets.

The Korean government puts more weight on commodity exchanges rather than futures exchanges, as the Korea Exchange is conducting sales of two futures products – gold and pork.

A recent study by the state-financed Korea Institute of Public Finance on setting up and running a gold exchange also involves the creation of a mercantile exchange focusing on spot trading.

The drive to open a commodity exchange is mainly because of one thing: bringing the gold market into the spotlight. The domestic gold market is so neglected that the volume traded in murky ways account for 70 percent of transactions.

A ministry official said the plan will create another investment market in addition to ending black-market gold transactions.

Critics, however, say the commodity exchange could result in wasted money. A researcher at a state-funded think tank said the government should abolish the value-added tax of 10 percent on gold transactions to render the black market economically unfeasible.

Some also question if commodity buyers and sellers around the world will conduct active transactions through a Korean commodity exchange.

Transactions in the domestic gold and pork futures markets are scarce. The number of daily transactions in the pork futures market fell to an average of 56 over the past month from more than 200 soon after the market’s opening in July last year.

A new task force of government officials and market experts will see what kind of commodities, including gold, raw materials and grain, will be good for trading on the exchange. The government plans to start with transactions of commodities in high demand or easy to deliver.

As for location, Gwangju, North Jeolla Province and several other provincial governments aim to attract the commodity exchange. North Jeolla Province plans to have the exchange built on the Saemangeum reclaimed land.

A senior official at the Strategy and Finance Ministry said no government-level discussion has started on the proposed opening of the commodity exchange.

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