By Mai Nguyen and Siyi Liu
HONG KONG (Reuters) -The London Metal Exchange (LME) is exploring the possibility of listing Hong Kong as an LME warehouse location, the owner’s chief executive said on Thursday, as the exchange looks to strengthen its global logistics footprint.
Registering warehouses in China, the world’s largest consumer of industrial metals, to store metal traded on the LME has been a strategic goal since Hong Kong Exchanges and Clearing (HKEX) bought the LME in 2012 for 2, 2 billion dollars.
The exchange recently said it was looking to expand its global warehouse network to include the Saudi port of Jeddah, while Reuters reported in January that it was also exploring opening a warehouse location in Hong Kong.
“We recently commissioned a feasibility study of this idea by a third party and we have received strong support from the local market,” said Bonnie Chan, who confirmed the Reuters report.
“LME warehouses in Hong Kong could strengthen the link between mainland physical metals markets and international prices on the LME, create more market arbitrage opportunities, close gaps in supply networks and improve logistics costs with road links to southern China” , she added.
As the world’s largest metals marketplace, the LME has approved metals warehousing facilities in 32 locations across the US, Europe and Asia that can supply metals such as aluminum and zinc that support the contracts.
Chan did not provide a timeline for any developments during an LMEWeek Asia event in Hong Kong. The exchange’s head of market development, Robin Martin, said later at the same event that the LME hoped to provide an update on the initiative later this year.
Critics of the plan have raised concerns about the strategy due to risks associated with China’s growing influence over foreign companies and individuals in the area.
They also noted that warehouse space in Hong Kong is more expensive than other nearby locations and that the city is not a major consumer of metals.
In addition, the LME will seek advice on the “final regulations” surrounding the Jeddah expansion, but remains positive about that initiative, said LME CEO Matt Chamberlain, speaking at the same event.
