Abaxx Technologies (ABXX): Commodity Exchange Launched
Video: A review of recent Abaxx announcements and what's next for the firm.
Transcript
Abaxx Technologies commodity exchange in Singapore has officially launched… the first new commodity exchange and clearinghouse in over a decade.
It’s worth noting that Abaxx is starting out with LNG and carbon credit futures, five contracts in total.
The current listed contracts are for LNG in the Gulf of Mexico, North Pacific Asia, and Northwest Europe. So they’re trading three LNG contracts. And for carbon credits, the first one is jurisdictional REDD, which is estimated to not harbor as many of the issues that REDD+ has had in the past. The voluntary carbon markets have been under a lot of controversy because of that specific type of carbon credit.
Anyway, that's one of the contracts, and their second futures contract for carbon is for CORSIA Phase 1 credits. Which are credits eligible for use in the CORSIA offsetting scheme in the aviation industry.
If you’ve been following Abaxx, you might notice that nickel sulfate isn’t being mentioned as a tradable contract yet. And that would be because it’s not quite ready for trading, but should be brought back in the next few weeks. Abaxx has likely had to deal with some delays on nickel thanks to the collapse of the Francis Key Scott Bridge in Baltimore, which is a major trading port for nickel in the United States.
We have a general idea of how many market participants are signed up to Abaxx’s exchange thanks to some graphics that the company shared last month.
For LNG, Abaxx has 10 trading firms involved, 8 brokerage firms, and 5 clearing firms.
On Carbon they have even more, with 22 trading firms, 8 brokerage firms, and 5 firms handling clearing services.
Lastly, when nickel sulfate is ready to be traded, 5 trading firms will be using the exchange initially, with 6 brokerage firms, and 5 clearing firms.
These certainly aren’t bad numbers for a new exchange, for reference CME, which is the largest commodity exchange group in the world, has around 70 clearing firms in total. So while Abaxx has a way to go to build out their markets and turn their contracts into futures benchmarks, they are at a decent starting point.
And if we take a look at their recently disclosed names, we can see that Abaxx has some notable clearing firms and brokers on their list of participants.
While Abaxx has two official futures commission merchants, aka FCMs… KGI Securities and StoneX, they also have three other clearing members. Marex, Mizuho, and Straights Financial will act as carry brokers that provide similar clearing services through the existing FCMs.
I couldn’t find any rankings specific to the brokers, but for the clearing members, Abaxx is already working with some of the largest firms in the world by customer assets.
Mizuho, ranked number 8, is also one of the largest sources of financing in the LNG space, so having them involved in the exchange is a big deal.
The other highly ranked clearing firms are Marex at number 12, StoneX at number 16, and Straights Financial at #27.
One of those clearing firms, StoneX, had confirmed on Thursday that Abaxx had officially executed its first futures trade on its exchange. So we already know that the exchange seems to be working properly, and we have had at least one initial block trade.
This means that Abaxx is finally out of the pre-revenue stage, and generating revenues from the exchange.
Given that liquidity, aka how many trades are being made on the exchange, is such a big deal, it will take time to bring in more market participants and take market share away from existing futures contracts like JKM.
The more trading firms that use a futures contract, the more that you’ll see other trading firms want to use it as well. Futures contracts act quite similarly to social networks, and their growth is often exponential for long periods of time. But this means that it could take a few quarters to get that ball rolling.
So we should temper our expectations and not expect incredible trading volumes out of the gate. But it’s exciting to see that Abaxx has already executed its first trade.
Going off of just the economics for the LNG futures contract, making $10 per trade, which is 5 dollars every time a firm buys a contract, and 5 dollars every time they sell…
With an average of 21 trading days per month and Abaxx running at a cash burn rate of 1.5M USD per month, then the exchange needs to have an average daily volume on the LNG contract of around 7,200 contracts being traded per day to reach financial breakeven.
Given the carbon credit contract has a smaller fee of $1 per trade, that can increase the numbers if they are a part of the volume mix. It could be more like 8 or 9 thousand contracts before breakeven. But yeah, those are the numbers to look out for, and just keep in mind it could take some time to get there as the exchange ramps up. I’d give it 6 to 12 months to see what happens.
But once we get past that point, an exchange is a high gross margin, capex-light business model once you have these systems in place, so the long-term prospects for this type of business are excellent if their contracts get mass market adoption.
The main questions to answer now are…
What volumes we’ll see on the contracts… and how fast?
Abaxx is hosting an investor call on July 3rd, I’ll hopefully be able to take notes on the call and I will share them on my Substack shortly after the call. It sounds like Abaxx is going to go over their plans after launch, and initial contract volumes, among other details.
So I’d recommend checking out my Substack if you’d like to see more content on this company, or other investment opportunities in green industries. I made a full, in-depth report on the Abaxx investment thesis over there.
I also have a paid subscription service that I can only offer to a limited number of members, due to the low levels of liquidity in most microcap stocks. So I will be raising prices after the first 50 paid subscribers sign up. So check that out if you’re interested, to lock in a low price. Thanks for watching.