Hong Kong exchange in talks to open first authorised metals warehouse in China to ease deliveries, expand LME’s business

A delivery warehouse on the mainland will add to the LME’s Asia network which comprises Taiwan, South Korea and Singapore

The world’s largest metal exchange also wants to launch six US dollar-denominated metal contracts this year in Hong Kong, a second launch after the first yuan-denominated financial instruments flopped

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Aluminium ingots stacked for export at Qingdao Port in Shandong province on March 14, 2010. The London Metal Exchange (LME), the wholly owned unit of the Hong Kong Exchanges and Clearing Limited, is in talks with the Guangdong provincial government to open the first foreign-owned warehouse in mainland China to expand its Asia network, currently comprising Taiwan, South Korea and Singapore. Photo: Reuters

Published: 3:15pm, 7 May 2019Updated: 10:46pm, 7 May 2019

Hong Kong Exchanges and Clearing Limited (HKEX), the owner of the world’s largest market for base metals, is in talks with the Guangdong provincial government to open its first authorised warehouse in one of the nine cities in the Greater Bay Area.

The proposed warehouse, to be authorised by the Hong Kong bourse’s wholly owned London Metal Exchange (LME) unit, will be a breakthrough as it adds a vital waypoint for the physical delivery of metal contracts traded on the marketplace. Currently, LME’s deliveries can only be done in Taiwan, South Korea or Singapore, adding to the transport and customs clearance costs for traders based in mainland China.

“Having a warehouse in mainland China will be the last piece of the puzzle for our global warehouse network,” said LME’s Chief Executive Matthew Chamberlain, speaking at a sideline of a conference in Hong Kong. “It shows our strong desire to expand in mainland China.”

A physical presence in the 11 cities that make up the Greater Bay Area also augments the three-year revitalisation plan outlined in February by HKEX Chief Executive Charles Li Xiaojia, in which he envisioned the transformation of Asia’s second-biggest market operator from a regional bourse into a global marketplace.

Critical to that vision is the role played by LME – bought by HKEX for £1.39 billion (US$1.8 billion) in 2012 – in China’s commodities trading. The bourse operator is betting that the Chinese government will gives its nod to a cross-border investment channel known as the Connect scheme, which will let global investors buy and sell ferrous, as well as precious metal contracts on Chinese exchanges via Hong Kong.

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