HKEx announces plans for more Asia-friendly LME

Officials from Hong Kong Exchanges and Clearing Ltd, or HKEx, say they are working on new commodity offerings from the London Metal Exchange, and ways of reducing or eliminating barriers for Asian investors to trade on the world's largest metal exchange.

Speaking at a seminar in London about his plans for LME, following its $2.17 billion takeover in June, HKEx Chief Executive Charles Li said he would also be taking action to increase LME's trading volumes from China, the world's major consumer of metals.

LME is primarily a marketplace for base metals such as copper and aluminum, while HKEx is one of the world's largest exchange owners by market capitalization.

The two sides have been working on a framework agreement which could take 18 to 24 months to implement.

The takeover is expected to be completed in the fourth quarter, subject to approval by the UK regulator, the Financial Services Authority.

He added those plans call for improving the market through electronic trading and modernization, and HKEx will adopt a "multi-dimensional strategy" to bring a lot more volume to the London market, especially by trying to remove barriers for trading in Asia.

"It is going to be about China; it is going to be about Asia; it is going to be about London," Li said.

He added that the takeover deal reflects China's growing importance in the global commodities market, as more trading activities are shifting from the west to the east, and said HKEx will be looking to extend LME's commodity offerings into such areas as coking coal and agriculture.

According to a report in the Wall Street Journal, the exchanges probably won't launch any new products, however, until they complete plans for a new in-house clearing mechanism, which will guarantee trades.

LME's warehousing operations have been dogged by criticism in recent times, since big banks and trading houses including Goldman Sachs Group Inc, JPMorgan Chase Co and Glencore International Plc bought warehouse companies.

To solve the problem, Li said it will be looking at improving access to warehouses offshore in China, and he is considering introducing Asia time zone price discovery to the exchange so that it could further liberalize and release demands for metals from Asia.

China consumes nearly 60 percent of the world's base metals.

For instance, demand for copper in China has been increasing by 16 percent annually in recent years, while in developed economies it has only been declining.

Wang Qing, managing director of Investment Banking Department of China International Capital Corp, the country's biggest investment bank, said although the commodity volume is big, it is small compared with other developed economies when looking at the per capita number.

China consumes 651 million tons of steel per year, for instance, compared with 71 million tons in Japan and 95 million tons in the United States. But the per capita amount is much smaller.

In 2011, the steel stock per capita in China was just five tons, a quarter of Korea, and one sixth of Japan.

"China is like a teenager. It eats a lot because it is growing fast, but it is not overweight," said Wang.

The LME is also considering introducing renminbi clearing, and working on the potential of renminbi-denominated products, added Li, at a time when the internationalization of renminbi is picking up pace.

Both the UK treasury and financial institutions are working on building London into an offshore trading center of the Chinese currency in the West.