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[MELBOURNE] Hong Kong Exchanges and Clearing plans to develop an industrial user base to back its metals trading hub slated for southern China, pushing to build its commodity business in the world's No 2 economy.
Qianhai, a new free trade zone near Hong Kong, is set to host the platform for trading metals before stretching into other commodities, pending regulatory approval, HKEx spokesman Scott Sapp told Reuters.
"Our goal is to leverage our experience in launching new initiatives with the mainland and the LME's (London Metal Exchange) successful model to 'physicalize' the mainland's commodities market," he said.
HKEx bought the LME for US$2.2 billion at the peak of the commodities boom back in 2012, and a mainland presence would come after a years-long struggle by the London bourse to break into China.
HKEx chief executive Charles Li has previously said plans by HKEx to create mainland, physically deliverable spot commodity markets are a way of getting the LME's warehousing expertise into China.
Sources said that the bourse's new electronic method of tracking metal in warehouses would help a push into the mainland. LMEshield was introduced after a financing scandal in China's Qingdao port two years ago that rocked the metals industry and opened up a market for securing metals inventory.
The LME has unveiled a string of new locations to host LMEshield, but so far, not China. Warehousing sources suggested Qianhai and Qingdao port could be prime locations if regulatory approval is granted, with more details expected at the LME Week Asia industry conference in Hong Kong next week.
By the end of 2015, annual spot commodities trading volume had reached US$4.5 trillion on more than 350 independent exchanges in China, according to data from Euromonitor. Trading volume grew 35 per cent annually from 2011 to 2015.
But regional commodities exchanges have no central regulator and many investors have walked away burnt, perhaps an opportunity for HKEx to leverage its LME brand.
Other issues expected to be discussed at next week's conference include a new gold contract, possibly over-the-counter, as well as LME's push to build liquidity on its monthly metals contracts.
Declining LME volumes and market share, and a rival exchange mooted by the London bourse's former chief are also likely to be talking points around the conference.
The LME saw a 9 per cent on-quarter decline in the trading of metals contracts in the first quarter, with US rival CME Group snapping at its heels with a string of new metals product launches and its own storage expansion plans.