(MENAFN- Khaleej Times)
The London Metal Exchange (LME) on Monday approved Hong Kong as a warehouse delivery point, seeking to boost access to mainland China, the world's biggest metals consumer.
Approving warehouses in China to store LME traded metal has been a strategic goal since Hong Kong Exchanges and Clearing bought the LME in 2012.
The world's largest and oldest industrial metals trading venue, LME said Hong Kong warehouses will be able to store all six of the main metals traded on the exchange.
Despite high costs in Hong Kong, there has been significant interest among warehouses, landlords and metals owners, LME CEO Matthew Chamberlain told the Reuters Global Markets Forum on the sidelines of the World Economic Forum annual meeting in Davos, Switzerland.
Some warehouse firms have been concerned about the cost of storage in Hong Kong.
"Given the cost of land in Hong Kong, it will likely require additional government support to allow the warehouse to be built," Arthur Fan, head of Asia-Pacific at brokerage Marex, said in a statement.
"However, overall we believe that this step will be welcomed by metals buyers in China," Fan added.
Chamberlain said rent will be higher at LME warehouses in Hong Kong, but investors will benefit from the proximity to mainland China.
"We absolutely recognise that Hong Kong is a higher-cost jurisdiction. But the LME structure already reflects this," he told Reuters.
The maximum amount warehouse companies can charge to store metal, is currently 51 cents per metric ton for copper in South Korea and Singapore, but it will be 61 cents in Hong Kong, according to LME documents.
In an internal presentation more than a year ago, the LME said that warehouse rents would have to be subsidised by the Hong Kong government to make it commercially viable.
However, Chamberlain said on Monday that no financial incentives for international warehouse companies have been agreed with the Hong Kong authorities so far.
"We believe strongly that LME warehousing is economically attractive in all of our locations around the world, and it should be the same in Hong Kong."
Hong Kong will join the LME's existing network of 32 locations three months after the first warehouse company has been approved.
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