Opinion | LME should strike while the iron is hot
The London Metal Exchange has a clever plan for Hong Kong, and its owner, Hong Kong Exchanges and Clearing, really likes the idea. The plan involves approving a new warehouse in the city to expand the LME’s global storage network and facilitate the physical exchange of metals such as aluminum and zinc between mainland China and the rest of the world.
Considering that mainland China is the world’s largest single importer of commodities on which most LME contracts depend, one has to wonder why this has not happened long ago.
The LME does not operate such warehouses, nor does it own the commodities stored there. However, it authorizes third-party operators to operate their own warehouses for LME-registered metals. Its global network consists of 450 warehouses. In Asia, it already has warehouses in Japan, South Korea, Malaysia, Singapore and Taiwan.
Hong Kong would be an ideal bridgehead as the location would help bridge the gaps in delivery times and reduce logistics costs. According to HKEX CEO Bonnie Chan Yiting, it could also help with metal pricing and improve arbitrage opportunities between mainland and international prices.
The rise of green technologies is expected to increase demand for metals such as copper, lithium, nickel and cobalt, which are critical for the production of electric vehicles and solar panels.
Hong Kong already has the necessary logistics and infrastructure as well as the international financial resources for this task.
The LME is currently sorting out the legal and tax issues. It also needs to find an operator with a site large enough to make the plan work. The area is expected to be around 10,000 square metres, comparable to a neighbourhood shopping centre such as Plaza Ascot in Fo Tan.
The plan will help improve the city’s economic integration with the Greater Bay Area, which is a priority for the local government. The city government can certainly do a lot to sort out the legal, tax and agricultural issues. As the saying goes, strike while the iron is hot. The Hong Kong government is the largest shareholder in the HKEX, so it is certainly within its mandate to look into this promising plan.
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