LME in final stages to approve Hong Kong as metal storage hub

The London Metal Exchange is in its final stages to approve Hong Kong as the main warehousing network for its metals, according to a Reuters report. 

The exchange considers the network in Hong Kong to be a gateway to mainland China, the report said. 

Approving warehouses in China to store metals traded on the LME has been a strategic goal for the exchange since it was bought by Hong Kong Exchanges and Clearing in 2012. The deal was done for $2.2 billion. 

China is the world’s largest consumer of industrial metals. However, LME has so far failed to get regulatory permission for setting up the network. 

LME's Hong Kong approval in final stages

Volumes traded on the LME could get a significant boost with the expansion of the warehousing network to Hong Kong, according to the report. 

However, industry sources told Reuters that the higher cost of storing the metals at the Hong Kong warehouses could keep international firms away from the territory. 

"The application to list Hong Kong as an LME delivery point has been submitted and assessed, and we are pleased to confirm that it satisfies all of the policy criteria," the LME told Reuters.

Reuters quoted LME in its report:

According to the report, LME is awaiting final approval from the exchange’s Executive Committee and Board of Directors to expand the network to Hong Kong. 

Criteria for the Hong Kong approval

A LME document on its website said that the policy criteria for listing Hong Kong as a warehousing network include the location having the capability to be a channel for the passage of metals to consumption points. 

The location must also have connections to international trading routes to allow access to other consuming countries, it further noted. 

The document also listed that the location must be "politically and economically stable, commercially sensible, fiscally appropriate, legally sound and not subject to corruption".

Meanwhile, Hong Kong does not meet one of the criteria listed in the document. It said that the location should be in regions of net consumption. 

Hong Kong is not a net consumer of industrial metals. 

Other criteria include that the location of the warehousing network must not be near adjacent areas of production for a particular metal. 

However, Hong Kong opens up a gateway to China, which is a net consuming nation for industrial metals. 

At present, the LME has about 465 approved warehouses in 32 locations across the world.

These locations include Asia, the US, and Europe. 

The warehouses are responsible for storing metals such as aluminum, copper, zinc, lead, tin, and nickel. 

LME is also the benchmark exchange in the world for trading base metals.