LME Set for Hong Kong Expansion as Demand for Metals Storage Nears Mainland China

Since Hong Kong Exchanges and Clearing (HKEx) acquired the LME in 2012 for $2.2 billion, the exchange has aimed to open warehouses in China. Registering facilities in Hong Kong would be a key step towards this goal, as it would offer companies in the region a viable alternative to mainland storage.

In a December 2023 presentation to the LME's warehousing committee, the exchange noted interest from regional companies in storing metals in Hong Kong. The move would also potentially boost LME trading volumes, a critical factor in remaining competitive as the exchange faces challenges in emerging markets like lithium and cobalt trading.

"The LME is actively exploring listing Hong Kong as an LME warehouse location, as part of our commitment to ensure we provide maximum global connectivity for the metals community," the LME said in response to inquiries, adding that the listing process is progressing and more details are expected by the end of the year.

Hong Kong logistics companies and stakeholders have responded positively to this potential development. The LME has been exploring several sites in the New Territories area of Hong Kong, which could be used as warehousing hubs. These locations, close to Southern China, would offer a strategic advantage for zinc and copper producers interested in storing metals near the mainland. However, infrastructure developments, including road construction, are required.

Despite its dominance in copper and aluminum markets, the LME has been losing ground in the trading of metals crucial for battery production, such as lithium and cobalt. Exchanges like CME Group have overtaken the LME in lithium and cobalt trading volumes, with CME reporting a 759% increase in lithium hydroxide trading in the first eight months of 2024 compared to the same period in 2023. In China, the Guangzhou Futures Exchange has also seen substantial growth in lithium carbonate futures trading.

While the LME has been slower to capitalize on the growing demand for battery metals, industry experts note that market participants are increasingly looking for the most efficient hedging and contract execution opportunities, rather than being tied to a specific exchange.