LONDON METAL EXCHANGE
unique ability to help the LME grow its business in Asia, and particularly China, and we will capitalise on this to deliver value for all our stakeholders.” Even as many economists and market watchers
are calling the end of the commodity ‘supercycle’, HKEx seem determined for the long play in this transaction, pointing to the fact that the ups and downs of commodity prices are not what drives exchange revenues. So, just as the sale was a once-in-a-lifetime
chance to cash-out for LME shareholders, it also the presented a one-off opportunity for HKEx to purchase a unique asset and to diversify into the world of commodities, and in that part of the complex in which the region holds significant sway.
a network of approved warehouses
inChina.And the deal is also likely to open up renminbi-based trading on the LME as metal contracts become available through HKEx in 2015. The symbolism of the deal, however, is not lost
on the market. But any real ‘end of an era’ – if there is to be one – will only come after stand-still arrangements put in place expire from 2015. Profound changes for now seem unlikely, as
recently alluded to by LME Chairman Sir Brian Bender in an interview with the Daily Telegraph. He explained why the success of the LME and its trusted reference and pricing mechanisms will remain and why selling the exchange to China shouldn’t be seen as bad news for the industry. “It’s [the metals business] with the LME because it’s a trusted reference price. If it ceased to be trusted, why wouldn’t the metal traders go somewhere else? In which case, the buyer would have wasted a lot of money ...” While the growth of LME trading remains
healthy it cannot continue to be taken for granted. And as China’s development phase slows, its own demand could begin to slow. Justifiably then, HKEx has laid out a multi-dimensional strategy to warrant the purchase price and both parties have a clear and shared vision of how to deliver on what, for many, remains an eye-watering amount of money. This includes, increasing volumes by opening up the Chinese mainland, capturing the internationalization of the renminbi, launching new and revised products, further developing the warehousing system, and accelerating LMEclear. The LME continues to ride the wave of increased
New Episode or Era? The LME sale has been shrouded in intrigue
from the start. However, under the terms of the transaction the LME will remain almost entirely unchanged in its structure and operations, at least until 2015. Location, management, execution methods (including the Ring which remains a focal
The LME will remain the world’s foremost base metals exchange thanks to HKEx’s position in Asia, its infrastructure and resources
point for spreads trading), regulator, ... all remain in place. And LMEclear development continues, with the recent selection of Swedish software house Cinnober as core technology provider for the new clearinghouse. The warehousing system – core of the LME’s
physical delivery – remains unaltered, although the acquisition will make it easier for the LME to establish
20 December 2012
activity and participation in the industrial materials sector and is determined not to let its dominance diminish. The acquisition by HKEx will give it further trading channels, development capital, IT expertise, and the ability to tap new markets and revenue streams, especially in the metals intensive region of Asia. It might also give the rest of us a clearer and more accurate insight into just what does go on in the metals industry in theMiddle Kingdom. “The LME will remain the world’s foremost base
metals exchange thanks to HKEx’s position in Asia, its infrastructure and resources. We begin a new chapter ... the LME is more secure than at any point in its 135-year history,” said Martin Abbott, Chief Executive. If executed well the combination will secure the
LME’s future for the decades ahead. •
Guy Isherwood is Publisher & Editor of Commodities Now.
www.commodities-now.com
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