Related News
London exchange presses warehouse plan
By Richard Fu |
May 31, 2012, Thursday
|
Online Edition
Online 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 worked with Shanghai authorities several years ago 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 operate mainland facilities for contract deliveries.
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 futures contracts on copper, zinc and other metals. Some Chinese copper producers and traders 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.
The renewed push comes at an interesting juncture. The 135-year-old LME is contemplating selling itself, and news reports say the likeliest two contenders to buy it are the Hong Kong Exchanges and Clearing and US-based IntercontinentalExchange Inc. It doesn't take much to see that a Hong Kong connection might do wonders in prodding the Chinese government to allow fully operating LME warehouses on its territory for the first time.
Milan declined to discuss the takeover.
Although physical delivery of metals traded on the LME represents a small share of market activity, it does play a key role in creating price convergence. To support that, the LME licenses a network of 600 warehouses around the world that handle stockpiles of metals that back up trading or can be released to the market in times of scarcity.
The LME is "going very carefully and is not rushing," Milan said of China. She added it could take a time before its China warehouse plan comes to fruition because there are issues to be addressed, like tax and logistics requirements.
The Shanghai exchange in late 2010 started a trial to allow copper and aluminum delivery to so-called "bonded warehouses" in Shanghai's free trade zones where the metals are exempt from value-added tax as well as import duties.
Milan said the LME's presence in China would not adversely affect volumes on the Shanghai exchange.
"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 plan comes as China continues to liberalize its commodities futures markets. On Monday, Wang Lihua, chairwoman of the Shanghai Futures Exchange, indicated the exchange 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.
"We've been in Asia for decades. The reason we are interested in China is because China is the biggest consumer of many of our metals, in particular copper," she said. "What the Shanghai exchange does doesn't stop the reasons why we also need to be here."
The LME worked with Shanghai authorities several years ago 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 operate mainland facilities for contract deliveries.
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 futures contracts on copper, zinc and other metals. Some Chinese copper producers and traders 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.
The renewed push comes at an interesting juncture. The 135-year-old LME is contemplating selling itself, and news reports say the likeliest two contenders to buy it are the Hong Kong Exchanges and Clearing and US-based IntercontinentalExchange Inc. It doesn't take much to see that a Hong Kong connection might do wonders in prodding the Chinese government to allow fully operating LME warehouses on its territory for the first time.
Milan declined to discuss the takeover.
Although physical delivery of metals traded on the LME represents a small share of market activity, it does play a key role in creating price convergence. To support that, the LME licenses a network of 600 warehouses around the world that handle stockpiles of metals that back up trading or can be released to the market in times of scarcity.
The LME is "going very carefully and is not rushing," Milan said of China. She added it could take a time before its China warehouse plan comes to fruition because there are issues to be addressed, like tax and logistics requirements.
The Shanghai exchange in late 2010 started a trial to allow copper and aluminum delivery to so-called "bonded warehouses" in Shanghai's free trade zones where the metals are exempt from value-added tax as well as import duties.
Milan said the LME's presence in China would not adversely affect volumes on the Shanghai exchange.
"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 plan comes as China continues to liberalize its commodities futures markets. On Monday, Wang Lihua, chairwoman of the Shanghai Futures Exchange, indicated the exchange 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.
"We've been in Asia for decades. The reason we are interested in China is because China is the biggest consumer of many of our metals, in particular copper," she said. "What the Shanghai exchange does doesn't stop the reasons why we also need to be here."
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
