Hong Kong Exchanges and Clearing Ltd is the holding company for the city’s stock exchange, futures exchange and clearing company. Its market capitalisation made it the world’s biggest listed bourse as of the end of 2012. In December 2012, the HKEx clinched the US$2.2 billion takeover of the London Metal Exchange, the world's biggest marketplace for industrial metals.
Hong Kong 'not ready to be a commodities trading centre'
Brokers and buyers cite lack of infrastructure, logistics and warehouses to handle trading
Enoch Yiu, Eric Ng and Kanis Li
Commodities brokers and buyers say Hong Kong does not yet have the trading infrastructure to be a major commodities centre.
That may change in the future as traders seek to take advantage of growing demand for commodities from the mainland.
"Hong Kong's commodities trading infrastructure is not complete, which means there is little room for trades and related financial products development to occur. This results in a low participation in commodities trading," Li Baomin, chairman of Jiangxi Copper, told the London Metal Exchange conference in the city.
Li said Hong Kong also lacked the logistics and warehousing arrangements to facilitate the physical trading of commodities products.
However, he said if Hong Kong launched local copper futures, Jiangxi Copper "will participate actively".
Li is among the more than 1,000 mainland and international metal producers, end users, commodities brokers and investors in Hong Kong to participate in a three-day seminar as part of LME Week, an annual event for big players to exchange views. This marks the first time the event has been held outside London and follows Hong Kong Exchanges and Clearing's £1.39 billion (HK$16.6 billion) purchase of the London Metal Exchange.
LME, the world's largest metal exchange, offers a range of metal products from copper to aluminium with trading valued at US$14.5 trillion last year. The HKEx aimed to use the deal as a shortcut to expand into commodities trading and to diversify its income source. The bourse, which operates the local stock and futures market, is struggling with falling stock market turnover and a decline in new listings.
Most commodities traders do little business in Hong Kong but that may be about to change.
ED&F Man Capital Markets, a LME member which has an office in Singapore, is planning to open an office in Hong Kong soon, Jack Chen, vice-president of marketing in Asia said.
"We are planning to have an office in Central because we believe Hong Kong is a going to be an important commodities market because of its proximity to mainland China," Chen said.
Tiger Shi Chenghu, head of Asia-Pacific metals and listed commodities at American brokerage Jefferies Securities, said the market had been talking about the internationalisation of China's futures market for some time.
"With the acquisition of the LME by HKEx, it's probably the right time that we can make some actual move," Shi said.
"Many mainland private investors and enterprises do not have access to the LME, while international players do not have access to the China market. If we could co-list products in each other's market in China or London, that would broaden access and the market will get bigger."
Swapnil Mokashi, chief executive of the Hong Kong office of Ushdev International, an Indian metal trader, said it had applied to join the LME after the HKEx-LME deal was first announced in June last year.
"We believe if LME would become part of the HKEx, it would have a greater opportunity to access the mainland market which will provide a huge opportunity in coming years," Mokashi said.
Li Tong, head of BOCI, said urbanisation in the mainland will help to boost the mainland's economic growth.