LME reviews Asia user committee as it focuses on growing business

The London Metal Exchange will review the need for a user committee in Asia as part of its plans to expand its business in the region, Liz Milan, md LME Asia and head of Asia commodities, Hong Kong Exchanges & Clearing, told Metal Bulletin.

The London Metal Exchange will review the need for a user committee in Asia as part of its plans to expand its business in the region, Liz Milan, md LME Asia and head of Asia commodities, Hong Kong Exchanges & Clearing, told Metal Bulletin.

“I guess it was put on the back burner in light of the acquisition last year. We will review it again […] I think there is probably still a need for that here and we should look at it again,” Milan said in an interview to Metal Bulletin in Singapore.

The exchange is looking at various ways to build its profile in Asia, including new products, new warehouse locations and a renewed drive to develop the LME’s relationship with China.

Exchange users and members in Asia had made calls previously for an Asia-specific committee to help make their views heard properly at the exchange level.

It would also help inform those affected by events such as those last February, when 1.5% was wiped off the price of copper in a matter of seconds, well before European market participants were fully active.

In April last year, Milan had said the LME had no plans for an Asia-specific committee, although she did not rule one out saying the possibility would be discussed. 

There is a renewed focus on the LME’s activities in Asia after the takeover by HKEx.

The exchange hosts the LME Week Asia from June 21 in Hong Kong for the first time. Various high-profile guests from China are expected to attend.

At the LME metals seminar on June 25, at least two panel sessions on are going to be debated in Chinese, with English translations available.

Last week, the LME announced that Kaohsiung in Taiwan would be its latest warehouse location in Asia and the exchange is making new hires and also relocating staff to help develop its regional business, in particular its ties with mainland China.

“We are moving ahead with looking at the strategy for building out the commodity business in Hong Kong and we are looking at further improving access for LME into China,” Milan said.

“Charles [HKEx ceo] is obviously using his extensive relationships and influence that he has in China to help forge relationships in China for Hong Kong and the LME,” Milan said.

The internationalisation of the yuan and the convertibility of the currency and debt markets in China are key issues.

“We have a number. I think its 18 big licensed SOEs [state-owned enterprises] on mainland [China] who already have access to LME […] people like Minmetals, Chalco, Jinchuan, they currently access via brokers into the LME,” she said.

“I think the LME is an extremely good brand in China,” she said, pointing that the accessibility is more around the currency convertibility issues.

The HKEx is looking to develop joint listings of commodities products with exchanges in mainland China. The exchange is also reviewing the prerequisite for members to have an office in London, HKEx ceo Charles Li has said.

“There are many Chinese entities that have the ability to access LME via Hong Kong,” she said.

The LME does not have plans of launching any new contract before the debut of LMEClear, its own clearing house, in September 2014.

“There is a push around Asia on LME but there is also a push around new products for Hong Kong exchange specifically not LME,” Milan said, adding that “they could potentially be in RMB”.

The new products for HKEx “wouldn’t be cannibalising our existing business on LME” but “would be likely to be what our current membership that are currently trading LME and are interested in trading in Hong Kong”, she said.

She declined to give specifics on products under development for the Hong Kong exchange.

“I think initially on LME there are service additions perhaps to existing contracts that we can do as opposed to brand new contracts,” Liz said, adding “We launched the swaps contracts, the averaging contracts may be developed further perhaps or look at developments around the index products.”

HKEx is exploring products like coking coal and iron ore and also wants to expand to soft commodities and agriculture products, Li has said earlier.

“It’s not that likely that we would put softs on LME,” Milan said, adding, “It’s more likely that they would sit where the business is currently being driven and that’s going to be Asia.”

The softs products may be launched on the Hong Kong Exchange, she said.

“We see the Hong Kong Exchange as being the gateway to China and therefore looking at building out that relationship, putting a new commodity platform based in Hong Kong,” Liz said.

“It depends on what the product is and where it best fits, if it fits best on Hong Kong exchange or if it fits best on LME,” she pointed.

Asia Benchmark
The London Metal Exchange revamped its Asian Benchmark price earlier in June citing growth in Asian trading on the bourse’s electronic platform LMEselect.

“We are not expecting at this stage for there to be a huge amount of trading on that product but we would hope that it becomes used as a benchmark now that its aligned more with the Shanghai price close and eventually grows over time in to a product that people would be looking to trade or actually capture that price,” Milan said.

Largely, only physical traders were using the Asian benchmark price, she added. “I think largely it’s only the physical traders who benchmark. It’s a benchmark rather than a traded price.”

The LME Asian Benchmark prices for three-month contracts in aluminium, copper, and zinc. It was narrowed to a 5 minute pricing window from an earlier 15 minutes timeframe and was pushed closer to the markets close in Shanghai.

The Asian Benchmark prices is derived from trading volumes on LMEselect between 06.55 and 07.00 GMT (14.55 and 15.00 CST), and published daily at 07.01 GMT (15.01 CST).

The LME has no immediate plans of extending the Asian Benchmark price for the other metals including tin, lead and nickel but will continue to review the need for it, Milan said.

In 2012, 16% of all 3-month outright trading on LMEselect was transacted during Asian trading hours, an increase of 13% year-on year.

Between January and May, as many as 17.5% of 3-month outrights on LMEselect were transacted during Asian trading hours between January and end of May 2013.

Shivani Singh

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