Posted By Global Banking and Finance Review
Posted on January 14, 2025
By Pratima Desai
LONDON (Reuters) - The London Metal Exchange (LME) is concluding its process for approving Hong Kong as a location for its global metals warehousing network, which the exchange considers to be a gateway to mainland China.
Approving warehouses in China, the world's largest consumer of industrial metals, to store metal traded on the LME has been a strategic goal since Hong Kong Exchanges and Clearing (HKEx) bought the LME in 2012 for $2.2 billion. But the LME has failed to get regulatory permission.
Expansion could mean a boost to LME trading volumes if successful, but industry sources said international warehouse firms worried about the exorbitant costs of storage in Hong Kong are unlikely to rush to list warehouses in the territory.
"The application to list Hong Kong as an LME delivery point has been submitted and assessed, and we are pleased to confirm that it satisfies all of the policy criteria," the LME told Reuters.
"The final stage of the application process, which involves input from the relevant LME metal advisory committees, is now underway and we plan to formally communicate next steps in early 2025."
Final approval is needed from the LME's Executive Committee and Board of Directors.
Policy criteria include the location having the capability to be a "conduit for the passage of metal to eventual consumption points" and connections to international trade routes to allow access to other consumer nations, a document on the LME's website said.
Approval also requires the location to be "politically and economically stable, commercially sensible, fiscally appropriate, legally sound and not subject to corruption".
Other criteria stipulate LME warehouses should be in areas of net consumption, which Hong Kong is not, and "away from adjacent areas of production for that particular metal", the document said. But it opens the door to mainland China, a net consumer of industrial metals.
Currently the LME has 465 approved warehouses in 32 locations across the United States, Europe and Asia storing metals such as aluminium, copper, zinc, lead, tin and nickel.
(Reporting by Pratima Desai. Editing by Mark Potter)
