By In an effort to improve access to mainland China, the world’s largest consumer of metals, the London Metal Exchange (LME) approved Hong Kong as a warehouse delivery location on Monday.
The strategic acquisition of the LME by Hong Kong Exchanges and Clearing (HKEX) in 2012 set in motion a series of initiatives aimed at expanding the LME’s global footprint and influence.
Access to China
One of the key strategic goals that emerged from this acquisition was the approval of warehouses in mainland China for the storage of LME-traded metals.
This move was seen as crucial for several reasons as it would facilitate greater access to the Chinese market, the world’s largest consumer of metals.
It would enhance the LME’s brand recognition and market share in the region and it would strengthen the exchange’s position as the global benchmark for metal prices.
The LME, the world’s largest and oldest industrial metals trading venue, announced that its Hong Kong warehouses will be able to store all six of the main metals traded on the exchange.
The LME considers approvals for warehouse locations with the objective of securing a widespread network around the world in the most important areas of net consumption, the exchange said on its website.
LME said:
Locations are assessed against a variety of factors such as local fiscal and regulatory systems and access to a good transport network.
The cost of LME’s Hong Kong warehouse
LME CEO Matthew Chamberlain told the Reuters Global Markets Forum that despite the high costs associated with operating in Hong Kong, there has been substantial interest from warehouse operators, landlords, and metal owners.
The cost of storage in Hong Kong has been a cause for concern for some warehouse companies.
“Given the cost of land in Hong Kong, it will likely require additional government support to allow the warehouse to be built,” Arthur Fan, head of Asia-Pacific at brokerage Marex, said in a statement.
“However, overall we believe that this step will be welcomed by metals buyers in China,” Fan added.
Rent at LME warehouses in Hong Kong will be higher, but investors will benefit from being closer to mainland China, Chamberlain told Reuters.
“We absolutely recognise that Hong Kong is a higher-cost jurisdiction. But the LME structure already reflects this,” he said.
LME documents stated that the maximum storage charge for copper in South Korea and Singapore is currently 51 cents per metric ton. This charge will rise to 61 cents in Hong Kong, according to Reuters.
The Hong Kong government would need to subsidise warehouse rents to make it commercially viable, the LME stated in an internal presentation over a year ago.
Chamberlain stated to Reuters on Monday that no financial incentives have been agreed upon with Hong Kong authorities for international warehouse companies.
We believe strongly that LME warehousing is economically attractive in all of our locations around the world, and it should be the same in Hong Kong.
The LME’s network of 32 locations will expand to include Hong Kong three months after the initial warehouse company receives approval.
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