China is open to LME warehouses
By Fu Chenghao |
June 1, 2012, Friday
|
Print Edition
Print Edition
THE London Metal Exchange says China is showing a "much more open attitude" toward the idea of the world's largest metals market expanding its warehouse network into the country.
The LME had worked with Shanghai authorities to set up commodity warehouses in the city's free trade zones, but the plan was halted in 2008 when China's securities regulator said rules were not in place to allow foreign exchanges to do so.
Now the LME is back with the plan, saying warehouses in the largest consumer of industrial metals like copper would help traders and producers access physical arbitrage more efficiently. Arbitrage is the practice of taking advantage of price differences between two or more markets, like the LME and the Shanghai Futures Exchange, which both trade copper, zinc and other metals contracts. Some Chinese companies have to do physical arbitrage via LME's warehouse in South Korea.
"This time we will make sure that the reasons for having a warehouse in China are much clearer," Liz Milan, managing director for LME Asia, said in an interview. "We get the feeling that this time there is much more open attitude to discuss the benefits."
She noted some Chinese industrial customers said they would be interested in having an LME site here.
Hong Kong connection
The renewed push comes at an interesting juncture. The LME, which licenses a network of 600 warehouses around the world, is contemplating selling itself, and news reports say the likeliest two bidders are the Hong Kong Exchanges & Clearing and US-based IntercontinentalExchange Inc. A Hong Kong connection might do wonders in prodding China to allow fully operating LME warehouses on its territory for the first time. Milan declined to discuss the takeover.
She said it could take time before its China warehouse plan comes to fruition because there are issues to be addressed, like tax and logistics requirements. She added the LME's presence in China would not adversely affect volumes on the Shanghai futures bourse.
"The experience we have is that having an LME warehouse next door to a Comex warehouse is not disadvantageous to Comex. It actually helps increase volumes between the exchanges," she said, referring to the Commodities Exchange, a unit of the New York Mercantile Exchange.
The LME warehouse plan comes as China continues to liberalize its futures markets.
Shanghai Futures Exchange Chairwoman Wang Lihua on Monday indicated the bourse will allow foreign participation in metals trading gradually and may set up overseas delivery points.
"There is a big opportunity, not a threat, for us as a market to develop in China along with the Shanghai Futures Exchange's ongoing internationalization," Milan said. "The reason we are interested in China is because China is the biggest consumer of many of our metals, in particular copper."
The LME had worked with Shanghai authorities to set up commodity warehouses in the city's free trade zones, but the plan was halted in 2008 when China's securities regulator said rules were not in place to allow foreign exchanges to do so.
Now the LME is back with the plan, saying warehouses in the largest consumer of industrial metals like copper would help traders and producers access physical arbitrage more efficiently. Arbitrage is the practice of taking advantage of price differences between two or more markets, like the LME and the Shanghai Futures Exchange, which both trade copper, zinc and other metals contracts. Some Chinese companies have to do physical arbitrage via LME's warehouse in South Korea.
"This time we will make sure that the reasons for having a warehouse in China are much clearer," Liz Milan, managing director for LME Asia, said in an interview. "We get the feeling that this time there is much more open attitude to discuss the benefits."
She noted some Chinese industrial customers said they would be interested in having an LME site here.
Hong Kong connection
The renewed push comes at an interesting juncture. The LME, which licenses a network of 600 warehouses around the world, is contemplating selling itself, and news reports say the likeliest two bidders are the Hong Kong Exchanges & Clearing and US-based IntercontinentalExchange Inc. A Hong Kong connection might do wonders in prodding China to allow fully operating LME warehouses on its territory for the first time. Milan declined to discuss the takeover.
She said it could take time before its China warehouse plan comes to fruition because there are issues to be addressed, like tax and logistics requirements. She added the LME's presence in China would not adversely affect volumes on the Shanghai futures bourse.
"The experience we have is that having an LME warehouse next door to a Comex warehouse is not disadvantageous to Comex. It actually helps increase volumes between the exchanges," she said, referring to the Commodities Exchange, a unit of the New York Mercantile Exchange.
The LME warehouse plan comes as China continues to liberalize its futures markets.
Shanghai Futures Exchange Chairwoman Wang Lihua on Monday indicated the bourse will allow foreign participation in metals trading gradually and may set up overseas delivery points.
"There is a big opportunity, not a threat, for us as a market to develop in China along with the Shanghai Futures Exchange's ongoing internationalization," Milan said. "The reason we are interested in China is because China is the biggest consumer of many of our metals, in particular copper."
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