The London Metal Exchange (LME) has officially approved Hong Kong as a warehouse delivery point, aiming to enhance access to mainland China, the world’s largest consumer of metals. This decision marks a significant step in LME’s strategy to expand its presence in Asia.
Key Highlights:
Strategic Goal:
Since acquiring the LME in 2012, Hong Kong Exchanges and Clearing has aimed to approve warehouses in China for storing LME-traded metals.
Warehouse Capabilities:
Hong Kong warehouses will be authorized to store all six primary metals traded on the LME.
Interest Despite Costs:
Despite high storage costs in Hong Kong, there is notable interest from warehouse operators, landlords, and metals owners.
LME CEO Matthew Chamberlain acknowledged this interest during the Reuters Global Markets Forum at the World Economic Forum in Davos.
Concerns Over Storage Costs:
Some warehouse firms have expressed concerns about the high costs associated with storage in Hong Kong.
Arthur Fan, head of Asia-Pacific at brokerage Marex, indicated that additional government support might be necessary to make warehouse construction viable.
Higher Rental Costs:
LME warehouses in Hong Kong will have higher rental rates compared to other locations. For example, the maximum charge for storing copper is set at 61 cents per metric ton in Hong Kong, compared to 51 cents in South Korea and Singapore.
Government Support:
An internal LME presentation suggested that warehouse rents may need to be subsidized by the Hong Kong government to ensure commercial viability.
However, Chamberlain stated that no financial incentives have been agreed upon with Hong Kong authorities as of now.
Operational Timeline:
Hong Kong will become part of the LME’s existing network of 32 locations three months after the first warehouse company receives approval.