Hong Kong's Lee Kee sees potential for possible spot HKEx metals market

[HONG KONG] Hundred of thousands of small- and medium-sized factories in China may use a spot commodity platform that Hong Kong Exchanges and Clearing is considering building, said the head of one of the biggest metals merchants in Hong Kong.

Clara Chan, chief executive officer of Lee Kee Group, which is a member of HKEx subsidiary the London Metal Exchange and which owns a brokerage firm, said factories could use the platform as they look to diversify supply channels for raw materials.

She also said they could use it for hedging their exposure to fluctuations in prices for metals such as copper, aluminium, nickel or zinc.

HKEx said last month it would explore the possibility of creating a platform for spot commodity trading in China supported by warehousing, as a way of getting the LME's expertise into the world's top metals consumer. It did not give a timeframe for the launch of the platform.

Lee Kee shipped about 120,000 tonnes of metals in the 2014/15 fiscal year to mostly small- and medium-sized factories in mainland China and Southeast Asia for the auto, toy, furnishing and construction sectors. The company also operates a zinc alloy production plant in China. "We have served physical, end-users (of metals) for a long time. We believe (they) have the potential for the (HKEx) spot market," Ms Chan told Reuters at an interview on Tuesday.

She said the lot size for trading on the HKEx spot platform should be small with a supply network close to end-users.

HKEx should conduct thorough research on end-user needs, and provide training after the platform is established, she said. "Factories are conservative, they won't do what they don't understand." Lee Kee became an associate LME trade member in 2014, which Ms Chan said was prompted by HKEx buying the LME in 2012, boosting the prospects for commodity trade in Hong Kong.

Its unit Promet Metals Testing Laboratory became one of seven laboratories approved by the LME for sampling and assaying this year. The unit could support the proposed HKEx spot platform in testing metals for delivery, Ms Chan said.

The company's brokerage arm, Horizon Commodity, also started dealing in mini LME metal contracts in Hong Kong last year.

Ms Chan, whose great grandfather set up Lee Kee in 1947 and who has traded with small metals end-users over 20 years, said many small- and medium-scaled factories in China were still struggling with a cash-crunch and waning demand amid the slowing economy.

She said some were trying hard to upgrade their facilities and improve product quality in a bid to survive.

LME copper prices will likely stay weak for much of this year, while zinc prices will benefit from supply cuts, Ms Chan added.

REUTERS