The influx of speculative money into the commodities market in recent years had created an extremely volatile market where prices spiral and plunge frequently. Price fluctuations cause suppliers to back out when prices suddenly rise and customers get cold feet when prices drop. In order to stay the course through such unpredictable markets, the trading team recognises the need to hedge against the fluctuations by taking appropriate positions in the physical vis-a-vis futures markets.

For instance, Mr Tan explained, 'when the international futures prices of wheat flour soared in 2007, our team understood the link between wheat flour and rice, both of which are household staples in Asian countries. We recognised a potential supply shortage in rice and took a longer and bigger physical position. This move led to a substantial profit in 2008'.

Mr Tan acknowledges that providing value-added market information alone is not sufficient to sustain Wee Tiong's success in the long run because it does not add value to the goods they trade in. To strengthen its position, Wee Tiong is looking for ways to develop its expertise as well as to diversify upstream and downstream.

One of the diversification plans is to expand its business by establishing a sugar refinery. The company has already drawn up plans to open a plant in Indonesia. The sugar refinery will be able to process raw sugar into white sugar.

This would extend Wee Tiong's reach and presence and capture more buyers in Indonesia. Opening the proposed sugar refinery in Indonesia may also help Wee Tiong to gain access to a huge, lucrative market and strengthen its position to compete with other trading houses. However, because of the recent global recession, Wee Tiong has scaled back its expansion plan for now and is treading more cautiously. The proposed refinery is expected to be ready by 2011.

'In the next decade, commodities will be here to stay', says Mr Tan. He hints at plans to expand product lines by exploring other commodities that have a pervasive presence in Asia, such as rubber and wheat. With more ingredients, it is a recipe for success.

This article was first published in The Business Times.