The London Metal Exchange is attracting a growing crowd to its Asian gala dinner this year, with about 60 percent more attendees. The biggest metals bourse is finding it harder to replicate those gains in trading in the region.
Asia accounted for 18 percent of electronic trading in the LME’s benchmark three-month futures at the end of 2013, two percentage points more than a year earlier, according to bourse data. That’s in contrast to how much the region consumes, with China alone using at least 45 percent of the world’s copper and aluminum, Barclays Plc estimates.
Hong Kong Exchanges & Clearing Ltd. spent $2.2 billion buying the 137-year-old bourse in a deal HKEx Chief Executive Officer Charles Li called “a catalyst” to tap China’s commodities demand. About a year later, he will be looking to lure as many as 1,500 executives gathered in Hong Kong this week to more than just dinner.
“Asia is the part of world where more LME revenue is expected to be coming from, and not the old world like Europe, or the U.S.,” said Robin Bhar, a London-based analyst at Societe Generale SA, who has tracked metals trading for three decades. “One year is a very short period of time. The LME has been around since 1877. We’ve got to be more patient.”
There are some signs the exchange is making progress. Electronic trading volumes during Asian hours in the first quarter were 28 percent higher than a year earlier, exchange data show. Trading can also be conducted on the floor during London hours, and via telephone 24 hours a day between LME members.
Tomorrow night’s dinner, the highlight of LME Week Asia, will be attended by as many as 600 more people than in 2013. For last year’s event Li dressed as English footballer David Beckham to entertain a crowd that was marked by the absence of senior officials from the Shanghai Futures Exchange, China’s largest provider of metals derivatives contracts.
This year, Yang Maijun, the chairman of the SHFE, joins a panel discussion at the event along with Dalian Commodity Exchange’s Liu Xingqiang and senior executives from the Zhengzhou Commodity Exchange and China Futures Association.
Commodities trading on the SHFE rose 35 percent to $9.7 trillion in 2013, with a 63 percent surge in volume for its steel reinforcement-bar futures, exchange data show. The LME handled $14.6 trillion of trade, a gain of less than 1 percent from 2012, according to its website. Futures and options trading volume on the LME rose 7.1 percent in 2013.
“We are not trying to go head-to-head with them,” Garry Jones, the CEO of the LME, said in an interview in Santiago on April 7. “We’re on good terms with all of them and we’re looking at the ways we can cooperate.”
Li said he wants to create an “East Wing” for the LME by easing curbs for traders in China and modifying contracts to attract Asian clients. Progress has been made with the confirmation of a unit of Guangzhou, China-based GF Securities Co. as a Category 1 member of the LME, allowing it to trade on the bourse’s floor, Jones said.
While the LME still wants to have warehouses in China, which would encourage trading by easing the physical delivery of metal, it isn’t a priority, Jones said. Chinese regulations have prohibited foreign futures exchanges from building inventory in the country for physical delivery.
“If they don’t get to have their own warehousing, maybe they can do a partnership,” said Arjan Van Veen, an analyst at Credit Suisse Group AG in Hong Kong. “The LME would recognize warehouses in China that are rubber-stamped by Shanghai.”
The LME has an existing network of more than 700 registered warehouses in 38 locations around world, with the closest ones to China in Taiwan.
The LMEX Index of the six main metals traded by the bourse has fallen 1.7 percent this year while the Standard & Poor’s GSCI Spot Index of 24 commodities rose 4 percent. The GSCI fell 0.1 percent today.
The combined growth in trading volume on the Dalian, Shanghai and Zhengzhou bourses was 39 percent in 2013, their data show. They are also expanding into new markets including bulk commodities such as iron ore and coking coal.
HKEx, the world’s third-largest exchange operator, said yesterday it plans to introduce contracts for thermal coal and industrial metals this year for Asian users. It will probably take less than five years for HKEx to provide “mutual access” between China and the rest of world in commodities, Li told journalists in Hong Kong yesterday.
“The Chinese believe in patience,” Michael Lion, chairman of Hong Kong-based Sims Metal Management Asia Ltd., part of the largest scrap metal recycler, said in an interview in Santiago on April 8. “The west wants its gratification.”