Bank of China Becomes Member of the London Metal Exchange

A Bank of China Ltd. unit became the first Chinese company member of the London Metal Exchange, the world’s biggest metals bourse.

BOCI Global Commodities (U.K.) Ltd. was approved as a category 2 member, giving it the right to trade by phone and electronically, the LME wrote yesterday in a notice after a board meeting. G.H. Financials Ltd., based in London, was also accepted, according to a separate notice to members.

China accounts for about 39 percent of global copper usage and 42 percent of aluminum, according to Barclays Capital. Chinese customers account for more than 50 percent of LME trading, according to Arthur Fan, chief executive officer of BOCI Global Commodities. The bourse is considering takeover bids for the 135-year-old exchange after trading volume climbed to a record last year.

“China, wherever you look, is now the No. 1 consumer, producer” Robin Bhar, an analyst at Societe Generale in London, said by phone. “It only makes sense that they’ve become the members of the exchange.”

The LME now has 27 category 2 members including Goldman Sachs Group Inc. and Toyota Tsusho Corp., the trading house part-owned by Japanese carmaker Toyota Motor Corp. They don’t have access to the ring, London’s last open-outcry trading floor, which is reserved for 12 category 1 members. The bourse accepted the resignation of Phibro Ltd. as a category 2 member, it said in a separate notice yesterday. There are a total of 94 members.

Commodity Market Ties

The Bank of China is the country’s third-largest lender by assets. The bank plans to open a Chicago branch to strengthen ties with commodities markets, China Daily reported March 1. BOCI Global Commodities, owned by the Chinese bank’s BOC International Holdings Ltd. unit, was authorized by U.K. regulators in January to hold client money.

BOCI Global Commodities’s metals brokerage team will employ eight people in London, Fan said by phone yesterday. The company, which is still in the process of recruiting, recently hired Lei Yao from Amalgamated Metal Trading Ltd., he said.

The bank plans to have a “positive impact” on Chinese customers and the bourse, Fan said in an interview March 29. “There will be more volume. It is a natural development for Chinese investment banks or brokers to establish an LME business.”

The LME handles more than 80 percent of industrial metals futures trading. Investors bought and sold $15.4 trillion of contracts last year, up 33 percent from 2010. The bourse opened its first Asian office in Singapore in 2010 and introduced new contracts with the Singapore Exchange Ltd. last year to attract investors.

Bids for the LME

The LME will invite takeover offers from a “small number” of bidders by May 7. It may be worth $1.3 billion, hedge-fund adviser Equity Research Desk has said. CME Group Inc., NYSE Euronext and Intercontinental Exchange Inc. made preliminary offers, according to three people with direct knowledge of the matter.

The LME Index of the six main metals traded on the exchange -- copper, aluminum, nickel, zinc, lead and tin -- more than tripled in the decade through 2011 as demand from emerging markets led by China overwhelmed supply from mines. The index has risen 5.5 percent this year.

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