SHFE Plans to Expand Warehouse Network in Competition With LME

The Shanghai Futures Exchange said it will open its delivery warehouse network to overseas investors while adding depots at home and abroad as competition with the London Metal Exchange intensifies.

The bourse plans new warehouses for copper in the southern province of Guangdong and for aluminum in the western municipality of Chongqing, Chairman Yang Maijun said at the exchange’s annual conference in Shanghai today. He didn’t say where overseas the SHFE would locate storage facilities.

HK Exchanges & Clearing Ltd.’s acquisition of the London bourse last year put the world’s biggest marketplace of industrial metals on the SHFE’s doorstep, sparking speculation it would pave the way for LME storehouses in China. The Chinese government still doesn’t allow domestic warehouses to be used for delivery for futures products traded on overseas exchanges.

“We have to adapt our exchange to meet the global needs of industry and to be creative in realizing change,” Yang said in a speech at the 10th Shanghai Derivatives Market Forum. He didn’t provide a time frame for his plans.

The SHFE has 15 warehouses for copper in Shanghai, Zhejiang and Jiangsu provinces, and another 22 around the country for aluminum. Shanghai will more than double its bonded warehouse space this year, according to Shanghai Free Trade Zones United Development Co.

The LME has a network of more than 700 warehouses around the world.

The Shanghai exchange will push forward will previously announced plans to open existing products to overseas investors, starting with nonferrous metals and natural rubber, and then to gold and silver, Yang said.

Bonded Zones

The bourse also plans to give overseas institutions access to delivery to warehouses inside China, including in bonded zones, he said. All these measures would be subject to approval from regulators.

The SHFE traded 365 million lots in 2012, 19 percent higher than a year earlier. Trading volume for copper futures rose 17 percent to 57.28 million lots, or 286 million tons, bourse data showed. This compared with 962 million tons of copper for LME’s futures contracts.

The Shanghai bourse also plans to revise contract details for lead and fuel oil futures, and may begin after-hours trading for gold and silver futures within one or two months.

The exchange is also examining potential contracts for 20 more products, including bitumen, hot-rolled coil and liquefied petroleum gas futures, Yang said.

The SHFE is also researching commodity indexes and options, he said.

— With assistance by Helen Sun

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