The London Metal Exchange (LME) has approved Hong Kong as a warehouse location for the first time, Bloomberg reports.
This decision marks a milestone in the bourse’s long-standing ambition to establish a stronger foothold in mainland China.
The LME confirmed in an emailed statement that the Hong Kong storage site will be authorized to hold its primary base metals, including copper, zinc, and aluminum. The location will become an active delivery point three months following the approval of the initial warehouse company and site.
This new addition to the LME’s extensive global network, which manages millions of tons of industrial metals, will offer a closer alternative to existing storage options in South Korea, Taiwan, or Malaysia. While the LME has actively sought a warehouse in mainland China to streamline metal deliveries and withdrawals for its Chinese clients, regulatory hurdles have hindered these efforts. Hong Kong represents a valuable step towards that goal.
The LME does not operate warehouses directly but instead licenses third-party companies to manage them in compliance with the bourse’s international regulations. The next phase in the Hong Kong initiative involves warehouse companies applying for LME accreditation.
Market analysts suggest that this new delivery point could help narrow price differences between China and the rest of the world, thereby reducing arbitrage opportunities. Furthermore, it might facilitate increased Chinese exports as the nation’s production capacity continues to expand.
While the Chinese economy has experienced a recent slowdown, it continues to play a crucial role in shaping global metals market trends. The LME’s LMEX Index of six base metals registered a modest annual gain last year, with indications of supply pressures currently overshadowing softer demand in China.
However, some skepticism remains about the viability of warehouses in Hong Kong due to the city’s relatively high property, labor, and logistics costs. Major storage points for mainland China have traditionally been located at highly efficient ports along the coast near Shanghai.
This warehouse approval is part of a broader push by the Hong Kong government to revitalize its economy, which has been impacted by the pandemic and political unrest. Chief Executive John Lee has also expressed his desire to elevate the city’s position in the global gold market.
