Speaking at the LME Week conference in London on Monday October 31, Li told delegates that the focus should shift away from fee increases and their relationship to falling volumes.
Average daily volumes have been declining throughout 2016 – in September, they were down 11.4% year-on-year.
Using the analogy of a pyramid, Li told delegates that the physical market forms the base, banks and financers the middle and the futures market the top. But the pyramid is shrinking due to the slowdown in China and a global economic and financial crisis.
“I understand why [the market] is pessimistic and feel the frustration as the pyramid is shrinking… [We are] all in a difficult period – we do everything that we can but we really shouldn’t rock the boat,” he said.
Li is confident in the exchange’s ability to tap into the lucrative Chinese market – physical users there cannot generally make or take physical delivery and therefore are not using the exchange, likening the set-up there to an inverse of the LME pyramid. The aim of HKEX and the LME is to merge the two pyramids.
Without the LME, HKEX would not succeed in China and, if the HKEX cannot deliver into China, it will not make the LME succeed, he said.
“So we are all in one big boat. I know sometimes you have to rock the boat – rock it – especially if you think we are sailing towards some dangerous rocks,” he said. “But don’t rock it every day. Don’t rock it every minute – because then I just think you are… moaning. We think there is nothing there and we hit the rocks and then we are all in the same boat – then you are going to go down with that.”
“Don’t rock it too hard – a leak is not going to help anybody,” he added. “We ensure that [the exchange] sails to glory because that is where the LME belongs.”
This article was first published on www.fastmarkets.com.
The London Metal Exchange and parent company Hong Kong Exchanges & Clearing (HKEX) are doing everything they can to overcome multiple challenges, HKEX ceo Charles Li said, urging market participants not to “rock the boat”.