LME to Start Clearing Collateral in Yuan as Asia Ascends

The London Metal Exchange will start accepting collateral denominated in Chinese yuan after setting up a clearing house in September as Asia increases its hold over the bourse.

The clearing house will become the “heartbeat” of the LME, the world’s biggest market place for industrial metals, said Chief Executive Officer Garry Jones.

Asia’s share of electronic trading at the 137-year-old institution now accounts for 10 percent to 25 percent of the total on any given day, Jones said at the LME Week Asia conference in Hong Kong today. The region accounted for 18 percent of electronic trading in benchmark three-month futures at the end of 2013, according to exchange data.

The bourse, which was acquired by Hong Kong Exchanges & Clearing Ltd. less than two years ago, still has no plans to introduce contracts in yuan, Jones said. He and HKEx Chief Executive Officer Charles Li are seeking to tap rising demand from China, which uses at least 45 percent of the world’s copper and aluminum, Barclays Plc estimates.

China’s consumption of metals may increase by 7 percent to 9 percent this year if the government achieves its 7.5 percent target for economic growth, Jin Xiaoguang, vice president at China Minmetals Non-Ferrous Metals Holding Co., said at the conference. The median of economists’ forecasts compiled by Bloomberg is for gross domestic production to expand by 7.3 percent.

As many as 1,500 executives are expected to gather at the LME’s gala dinner in Hong Kong tonight.

That compares with 900 last year, when 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.

Mainland Guests

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.

Competition from longer trading hours from the SHFE is not a concern for the LME, said Jones.

“All pools of liquidity are good,” said the LME chief.

Commodities trading on the SHFE rose 35 percent to $9.7 trillion in 2013, 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 bourse rose 7.1 percent in 2013.

HKEx, which spent $2.2 billion buying the LME, said on April 22 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 at the time.

— With assistance by Alfred Cang, Chanyaporn Chanjaroen, and Alex Davis

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