HKEx Profit on London Metal Exchange Drops as Trading Falls

  • LME’s 1H Ebitda down 19 percent as revenues fall 9 percent
  • Bourse has agreed to cut fees after discussions with members

Hong Kong Exchanges & Clearing Ltd. said earnings from its commodities business -- primarily the London Metal Exchange -- extended their slump in the first half as the world’s biggest metals bourse battles lower trading volumes.

The unit’s earnings before interest, tax, depreciation and amortization fell 19 percent to HK$513 million ($66 million) in the six months to June, from HK$632 million a year earlier, for their second consecutive decline over the half-year period. The HKEx’s first-half Ebitda across all its businesses, including equities and derivatives trading, fell 25 percent.

Commodities saw revenue decline 9 percent to HK$804 million, while LME average daily trading volumes fell by the same amount. The drop in activity reflected “continued weakness in the global metals market,” Chairman Chow Chung Kong said in a statement.

The LME last week agreed to reduce some charges from September after discussions with exchange members, who have argued that higher trading costs are deterring business. Users “want to circumvent” the exchange because of higher fees, Simon van den Born, head of metals at brokerage Marex Spectron Group Ltd., said in June, while the LME’s former Chief Executive Officer Martin Abbott is exploring the possibility of setting up a rival to combat the exchange’s perceived flaws.

“Of course everything has a cost and if trading is too expensive people will shy away,” Richard Fu, head of Asia Pacific at LME member Amalgamated Metals Trading Ltd. said by phone from London. “But it’s very difficult to quantify the effect on revenues. There are various reasons. The market is not as strong as it was before, and there are some people getting out while others are coming in.”

Gunvor Group Ltd. was among physical traders that withdrew from metals following the slump in commodities in the second half of 2015. Volumes on the LME have fallen amid a trading boom on Chinese bourses such as the Shanghai Futures Exchange, and as CME Group Inc. boosted trade on its copper contracts to record levels.

The LME Index of base metals has risen about 9 percent this year in a partial recovery from last year’s slump, although average metals prices in the first half remained well below levels of a year earlier.

Charles Li, chief executive officer of HKEx, led the buy-out of the LME in 2012 with a pledge to expand in commodities. The LME said on Tuesday it’s planning precious metals contracts including gold and silver next year in a venture with the World Gold Council and a group of banks and traders. Li also announced plans earlier this year to develop a spot commodities trading platform in mainland China, scheduled for startup in the first half of next year.

HKEX closed down 0.8 percent at HK$192.40 a share.

— With assistance by Martin Ritchie

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