LME to seize opportunities in connecting China market, offshore RMB business

The London Metal Exchange (LME) said Monday that it plans to launch Hong Kong-based commodities contracts in order to seize opportunities from the upcoming Shanghai-Hong Kong Stock Connect scheme, which offers a seamless inter-investment channel between the two cities' exchanges.

The bourse, now owned by Hong Kong Exchanges and Clearing Ltd (HKEx), is also expecting to push forward its offshore business in renminbi (RMB), China's currency.

Charles Li, chief executive of HKEx Group, said in LME Metals Seminar 2014 on Monday that if the stock connect program works, there is "no reason not to believe you can replicate that in the commodity space."

The LME is the world's oldest and largest market for industrial metals such as aluminum, copper and zinc. In December 2012, it was acquired by HKEx at a price of around 2.2 billion U.S. dollars.

"From London direct connect out of the timezone is not going to work, you have to create a platform in Hong Kong with products that the Chinese feel they can appreciate and identify with," Li said.

"If we are able to find a way to replicate Shanghai-Hong Kong Stock Connect in commodities, that will be a transformation," he added.

As China's strong presence in the industrial metal market and its currency are playing a more vital role in the financial system, the LME is also expecting to push forward its offshore RMB service.

Trevor Spanner, chief executive of LME Clear, the LME's self-clearing house launched on Sept. 22, 2014 to underpin the bourse's Chinese business, said in a keynote speech that the clearing house will add the Chinese currency as collateral by the end of year.

LME Clear is working in progress with LME and HKEx in a number of potential areas, while the "phased introduction" of CNH, or offshore RMB, in the clearing house is a significant step, he said.

Garry Jones, chief executive officer of LME, said the bourse is working with British Treasury to increase the London RMB market to allow for holdings of bonds as collateral rather than just cash.

Meanwhile, LME and LME Clear are planning to introduce RMB-denominated contracts in the near future, according to the expectation of most of the seminar participants. Both entities will also include RMB as the margin account currency.

Arthur Fan, chief executive officer of BOCI Global Commodities (UK) Limited, said that the trading of LME metals in RMB is an irresistible trend.

"It's not a matter of whether we will see it, but when. It's a matter of timing," he said.