LME Asia Week 2017: Keeping it physical

Pictured above: Charles Li, chief executive of Hong Kong Exchange (HKEX).

In a year of anniversaries for the London Metal Exchange (LME), its executives stressed to attendees of LME Asia Week 2017, held in Hong Kong in May, that it is committed to serving its core market of physical metal buyers and sellers.

Charles Li, the chief executive of Hong Kong Exchange (HKEX), commented that 2017 marked the fifth anniversary of HKEX assuming ownership of the LME, while Sir C.K. Chow, chair of HKEX, noted that in 2017 the LME is commemorating 140 years in business since it “began in a coffee shop in London in 1877.”

Chow, Li and other LME executives said HKEX and LME are taking measures to serve the LME’s core metals trading customers while also providing a link to business opportunities in the People’s Republic of China. Regarding full access to China’s market, Li commented, “We are trying very hard; I think progress is accumulating [and] it will meet a turning point."

LME Chief Executive Matthew Chamberlain says in a discussion paper released by the LME in late April 2017 has been designed to articulate the LME’s vision and to solicit feedback from its customers.

He says the LME is aware that daily metals pricing and warehousing services are core assets, and maintaining both is a way of “respecting our roots in the physical market.”

Regarding warehousing, Li acknowledged there had been “issues” in the previous few years. He said progress has been made, but, “We’re still trying to fix our warehouse issue.” He said the “biggest elephant in the room” involves increasing the LME’s trading volume in China, which he called “a complex and challenging story.”

Li said HKEX and the LME are determined to find ways to serve its core physical metals market while also providing services to investors in China who are not part of the metals industry supply chain. He made a comparison to United States-based retailer Home Depot, where contractors are the predominant buyers in some sections of the store while other aisles sell items “for the ordinary Joe.” Li said he would like the LME to similarly have a service for people who “want to do a simple trade.”

Adrian Farnham of LMEClear said his division is seeking ways to speed up transactions for traditional metals buyers and sellers, many of whom can be “long on assets but short on cash.”

LME Head of Market Development James Proudlock, who formerly worked with JP Morgan, said the inclusion of nonphysical asset holders in the LME market can help address that. “Traders can get a risk price; for firms that need cash flow, banks can provide that via over-the-counter trades.”

There is room in the commodities market for nonphysical asset holders, said Proudlock. “The biggest fear I have is the number of banks that have left the commodities trading [arena],” he commented.

The LME Asia Week 2017 metal seminar was 10 May at the Hong Kong Convention and Exhibition Centre.