HKEx metals contracts aim to pave way for future mainland tie-ups

HKEx move to trade copper, aluminium and zinc in yuan an effort to pave the way for future arrangements with mainland exchanges

PUBLISHED : Wednesday, 23 April, 2014, 12:50am
UPDATED : Wednesday, 23 April, 2014, 4:17am

Hong Kong Exchanges and Clearing unveiled detail of contracts it is launching to spur commodity trading in the city as part of a bid to attract mainland investors and pave the way for future tie-ups with established mainland commodity exchanges in places like Shanghai, Zhengzhou and Dalian.

"We would like to see a tie-up with one or more of the mainland futures exchanges for cross listing our [commodity] products. This is a dream but it could turn into reality. We would hope this happens in less than 20 years, less than 10 years or even less than five years," HKEx chief executive Charles Li Xiaojia said yesterday.

Li introduced the new commodity trading platform in Hong Kong by saying that the three metal contracts they will launch later in the year will trade in yuan and an energy contract based on coal will be traded in US dollars. This is the latest effort to promote commodity trading in the city following its £1.39 billion (HK$18.1 billion) acquisition of the London Metal Exchange in 2012.

The three metal contracts are copper, aluminium and zinc, which are the most heavily traded in the LME, according to Rebecca Brosnan, head of Asia commodities for HKEx.

Unlike the LME, where the contracts are traded in US dollars per tonne with physical delivery, the three metal contracts will be traded in yuan and will be settled in cash, she said.

The contract size in Hong Hong is five tonnes, compared with the LME's contract size of 25 tonnes.

The exchange will also introduce a thermal coal contract that is not traded in the LME but which Brosnan believes would be in demand because China is now the world's top consumer of coal, used extensively by electricity power plants.

"We have gauged the interest of the users and there is a strong demand for these contracts," she said.

The thermal coal contract is an index future that tracks the API8 Thermal Coal Index used for the price of coal delivered to southern China. The contract's size is 200 tonnes.

Li said all 180 local futures brokers could trade on the platform without applying for LME membership.

The exchange today will sign a memorandum of understanding with the Hong Kong branch of China Minsheng Banking, which is active in financing commodity traders in the mainland and could join the Hong Kong commodity market.

Li said the new platform could explore tie-ups with mainland commodity exchanges in the same way that HKEx has linked up with the Shanghai Stock Exchange to cross trade each other's stocks from October.

"The rationale behind our Asia commodities platform is to meet the hedging needs of Asian players and to capture the internationalisation of the yuan," Li said.

The Shanghai Futures Exchange trades copper, aluminium, zinc and precious metals such as gold and silver.