LME set to open in Shanghai FTZ

The London Metal Exchange (LME) may become the first international exchange house to establish commodities warehouses in the China (Shanghai) Pilot Free Trade Zone (FTZ). Economic Information, an affiliate of the Xinhua News Agency, reported Monday, citing people close to the matter.

The newspaper went on to report that copper and other industrial metals will be the initial batch of metals being handled at the LME warehouses.

"It is good news for China's commodity business, and the LME will bring its advanced warehousing system and other expertise to China, pushing China to make progress," a veteran nonferrous metal futures analyst who wished to remain anonymous told the Global Times Monday.

The LME is recognized as the international center for industrial metals trading, handling more than 80 percent of global non-ferrous trading business. It has over 700 approved warehouses for physical commodities in 37 locations in 14 countries.

Nine of the warehouses are located in Asia, but none in China.

"China is a big commodities consumption market, and accounts for about 40 percent of global copper consumption. Therefore it is a target market for the LME," Fang Junfeng, a metal analyst at Shanghai CIFCO Futures, told the Global Times Monday.

The importance of targeting China's growth and establishing warehouses in the country was demonstrated by the $2.2 billion takeover of the LME by Hong Kong Exchanges and Clearing Limited (HKEx). which was completed in December 2012.

Fang said that the majority of Chinese companies buy copper at the LME, either on the spot market or futures market, and have it delivered to neighboring countries such as South Korea, Singapore and Malaysia before shipping it to China.

This leads to higher shipping and storage costs, Fang noted.

"If the LME establishes a warehousing system in China, it can better serve its Chinese clients. The contract price difference will be gradually narrowed down, and logistics costs will be reduced as well," said Fang.