The London Metal Exchange (LME) is exploring the possibility of listing Hong Kong as an LME warehouse location, according to the chief executive of its owner, Hong Kong Exchanges and Clearing (HKEX). This move is part of the exchange’s strategy 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 aim since HKEX acquired the LME in 2012 for $2.2 billion. The exchange has recently said it is looking to expand its global warehouse network, including adding a location in Saudi port Jeddah and exploring the possibility of opening a warehouse in Hong Kong.
Bonnie Chan, the CEO of HKEX, confirmed the Reuters report, stating that the LME has commissioned a third-party feasibility study on the idea and has been receiving great support from the local market. Chan believes that LME warehouses in Hong Kong could strengthen the link between mainland physical metals markets and international pricing on the LME, create more market arbitrage opportunities, close gaps in delivery networks, and improve logistics costs with road connectivity to southern China.
As the world’s largest metals marketplace, the LME has approved metals storage facilities in 32 locations across the U.S., Europe, and Asia that can take delivery of metals like aluminum, copper, and zinc that underpin its contracts. However, Chan did not provide a timeline for any developments regarding the Hong Kong warehouse initiative.
The LME’s head of market development, Robin Martin, stated at the same event that the exchange hopes to be in a position to provide an update on the initiative later this year. Critics have raised concerns about the strategy due to risks associated with China’s growing influence over foreign firms and individuals in Hong Kong, as well as the higher warehouse space costs in the city compared to other nearby locations.
Separately, the LME will undertake consulting on the “final rulemaking” around the Jeddah expansion, but remains positive on that initiative, according to LME CEO Matt Chamberlain.