Little progress seen so far in turning Hong Kong into a commodity trading centre

Three years after the local exchange bought the London Metal Exchange, little progress has been made in turning Hong Kong into a commodity trading centre.

Hong Kong Exchanges and Clearing (HKEx) paid £1.39 billion (HK$16.9 billion) to buy the LME, but the city continues to lag Singapore and Japan in commodities trading and metal trading is still run in London where the trade shows no sign of moving.

The only gain from the purchase is in HKEx's bottom line. An increase in fees and the new LME clearing house has provided HKEx with HK$446 million in income, up 42 per cent from a year ago, accounting for 15.9 per cent of its total. The funds contributed to HKEx's first quarter profit of HK$1.58 billion, a rise of 34 per cent.

"There are some Hong Kong and mainland brokers who tried to start a commodities desk last year but the result is not very good," said Jeffrey Chan Lap-tak, chairman of Hong Kong Securities Association.

Chan said some brokers want to attract mainland metal users such as car makers or manufacturers to trade in Hong Kong commodity products after HKEx launched three metal contracts in December in aluminium, zinc and copper. But so far the average daily turnover in the first four months stood at only 287 contracts, the second least traded products in the exchange.

"According to some brokers, they reflect the view that mainland metal users want to have physical delivery as they need the metal for their production. But the three contracts traded in Hong Kong are cash only without physical delivery," Chan said.