Quotes from LME Week 2012

London 17/10/2012 – The global metal industry, as usual, descended on London this week for its annual round of seminars, meetings and glad-handing, centred around the LME Dinner.

This took place at the plush Grosvenor House hotel – as at many events, this week conversation was dominated by the LME’s sale to Hong Kong Exchanges and Clearing (HKEx) and warehouses.

Listed below are some of the comments made round and about all the various events.

AT THE DINNER

“This is a first for us. We are not serial acquirers. This is not a merger – it is a marriage. It is a marriage of consenting adults, not a takeover” – HKEx chief executive Charles Li

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“Subject to the decision of the regulator – we are about to enter a new era in the 135-year history of the LME. One which will, on the one hand, retain the brand and essential characteristics of the exchange with its links to the physical market; and one which, on the other, will provide us with an assured future, backed by the experience and resources of the HKEx” – LME chairman Sir Brian Bender

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“We cannot afford to take a short-term view [on warehousing] and that is especially so given that the situation in which we find ourselves is the result of long-term factors” – LME CEO Martin Abbott

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“Being a part of the Hong Kong Exchanges and Clearing Group… means there will be the potential for RMB (renminbi) denominated products, for efficient global clearing solutions and for even closer working relations with mainland China” – Abbott

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“This is not the end, nor is it the beginning of the end – this is the end of the beginning” – Li

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WAREHOUSING

“We will take a hard, long look at the way the system is operating” – Abbott

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“If there is one area that would have potentially kept us out [of the LME bidding process], it is warehousing” – Li

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“It is of deep concern to us. There is a six-month review [this month] and I want that process to run its due course about whether additional changes are needed” – Li

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“There’s zero chance that we go back to the days of the independent or family-owned warehouses. That’s in the past. There are plenty of trading houses or financially inclined firms that would be happy to take those asset off [the banks’] hands. The void would be filled quickly” – US trader

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“The banks just want to make profits on their computer screens in New York. They’re not interested manufacturing products. We got into the mess in the first place when banks got too deep into the housing market. We don’t need to fall into the same trap [in metals]” – US extruder

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“Queues exist because of macroeconomics and it is macroeconomics, not Hong Kong, that will make them disappear” – metal trader

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“Warehouse companies are the bad guys at the moment – they have the finger pointed at them for the high premiums. But admittedly all these guys that are sitting on their stocks and not offering anything out are as much to blame” – trader

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“People want material right now and they want it for free – well, it doesn’t work like that” – source

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“The LME has to get it right, so that we deliver more for consumers but don’t let too much out for the benefit of other warehouses or financiers” – warehouser

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WHAT HKEX, THE LME’S NEW OWNERS, BRING TO THE TABLE

“The LME is a great franchise. We love the current date structure… we have no plans to change it. The LME will always be located in London” – Li

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“[The new entity] will be a nine-member board and the new owners will want to exercise control and protect their investment. There will be only four executives – Martin Abbott will be the CEO – and Brian Bender will continue as chairman” – Li

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“The LME has talked about potential opportunities – stainless steel and others. Logically, things like iron ore and further developments on the steel side things may well be areas of focus in the future” – Jeremy Goldwyn, head of business development Asia at Sucden Financial

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“All the big-ticket business is taking place in Asia, and traders in China would like the kind of transparency they would get from having LME facilities closer to home. This deal will ultimately be good for the LME” – Jonathan Barratt, CEO of Barratt’s Bulletin

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“I don’t think that [Bank of China International] will be the first and only long-term [Chinese] member for the LME” – Goldwyn

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“If a foreign LME wants to sign up warehouses in Shanghai, of course that’s impossible but a Chinese HKEx can easily persuade the government to do that” – futures market expert Hu Yuyue

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“The HKEx paid a lot of money for the LME and I think we’ll see some big changes to the way the LME functions in 2015, whether or not there is an increase in trading volumes” – metals analyst in Singapore

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MARKET OUTLOOK

“It [2013] will be a challenging year for metal markets… there have been larger surpluses than anticipated this year, although copper will be in balance” – Vanessa Davidson, group manager for copper and nickel at consultancy CRU

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“If Barack Obama wins [November’s US presidential election], we will see a slight dip in prices; if Mitt Romney wins, we will see a slight rise” – Jason Schenker, president of Prestige Economics

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“We also have not seen much in the way of [copper industry] labour disruptions, and if that repeats again next year, then that could provide an upside surprise” – Gayle Berry, Barclays Capital

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“The fundamental ingredients for a sustainable bull-run [in copper] – strong demand and constrained supply – are still not in place at the moment, however” – Standard Bank

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“Sentiment is changing day-by-day typified by risk-on/risk-off. We could maybe see a longer period of risk-off in 2013, punctuated by risk-aversion on events – there are a lot of event risks” – Robin Bhar, Société Générale analyst

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REGULATION

“Part of what has fed the new regulations is the 2008 crisis… it is an attempt to make the world a safer place and that’s a good thing” -Diarmuid O’Hegarty, LME deputy chief executive

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“[Regulation change] levels the playing field as it has been a real patchwork quilt. But they are implementing a lot of things in a hurry” – Trevor Spanner, head of post-trade services at the LME

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“If Romney gets into the White House, then we could see a change in how this body views regulation for the next four years” – US-based fund manager

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(Compiled by the FastMarkets reporting team)