Charles Li Direct 
22/04/2014 
 

Charles Li Direct

LME Week Asia kicks off with new commodities contracts in Hong Kong


 

It’s amazing to think nearly a full year has passed already since our inaugural LME Week Asia in 2013, but it’s here again and bigger and better than ever.

LME Week Asia brings together producers, consumers, metals traders, Mainland exchanges and LME members from around the world to discuss market trends and seek new opportunities, particularly in China.  As the centre of gravity in the commodities market shifts from west to east, Hong Kong is well positioned to connect buyers and sellers, connect Asia with the rest of the world, and connect other markets with Mainland China.

Global connectivity is actually the theme of LME Week Asia this year, and it will be explored in more depth at several events scheduled for this week.  I wrote last year that our connectivity plan involves three Ps: Products, Platform and Participants.  The LME brings expertise, membership and Products; Hong Kong will be the Platform for products serving the Asian market; and Participants will come from Mainland China.  Hong Kong is the nexus that facilitates this connectivity.

Today marked a key step towards fulfilling that vision.  Our Asia Commodities team announced four new commodities contracts this afternoon.  The London Aluminium Futures, London Copper Futures, and London Zinc Futures unveiled today are based the LME’s leading products in terms of volume and value, which is why they will be among the first products traded, cleared and settled here in Hong Kong.

The fourth new contract is the API 8 Thermal Coal Futures contract.  The contract is particularly strategic for HKEx because China is one of the largest coal users and Asia, led by China, accounts for more than half of the world’s thermal coal use*.  We hope to help more consumers use derivatives as a hedging tool.  

All four contracts are expected to be launched in the second half of this year, subject to regulatory approval and market readiness.  The metals futures will trade in RMB, while the coal futures will trade in US dollars.  All four will be cash settled, with clearing and settlement happening in Hong Kong.

We’re already seeing signs that the commodities industry is taking root in Hong Kong; for instance, last year Standard Chartered moved its global head of metals trading from London to our city.  Other banks are expanding their metals trading desks in Hong Kong, too, in light of our acquisition of the LME, China’s growing influence on commodities pricing, and the slow but accelerating opening of China’s financial market, as evidenced by a very recent development.

Earlier this month the China Securities Regulatory Commission on the Mainland and Securities and Futures Commission in Hong Kong gave preliminary approval to the Shanghai-Hong Kong Stock Connect, a programme that will see investors in the Mainland able to trade eligible shares in Hong Kong and vice versa.  The cross-border trading link is a major breakthrough for Mainland China’s financial market development and for Hong Kong as a global centre of finance.

If launched successfully, the Shanghai-Hong Kong Stock Connect programme will provide significant insight for the internationalisation of Mainland China’s commodities market and the development of Hong Kong’s commodities market.  With an economy that continues to grow at a robust pace, the Mainland is now a leading consumer and importer of many bulk commodities from all over the world.  The Mainland commodities industry shares a common dream of internationalising the Mainland commodities markets and securing for China a level of influence and price-setting authority that matches the country’s economic strength and increasing role in the international commodity markets.

There are various ways to realise the internationalisation of Mainland China’s commodities market.  It can be achieved by exporting the commodities products and prices in Mainland markets to overseas markets, by importing overseas commodities products and prices to Mainland markets, by inviting international users and investors to Mainland markets (eg, the oil futures platform in the Shanghai Free Trade Zone), or by giving Mainland users and investors access to overseas market through something like the Shanghai-Hong Kong Stock Connect model.  HKEx will try its best to provide more options for the internationalisation of Mainland China’s commodities markets through collaboration with our Mainland counterparts.

This year’s LME Week Asia is bigger than ever before.  More than 600 people from around the world are set to attend the metals seminar on Thursday - one of the week’s premier events – and more than 1,400 are expected to attend to the LME Week Asia dinner, nearly 50 per cent more than last year.

At the metals seminar this year, the Financial Secretary of the Hong Kong SAR Government, Mr John Tsang, will give his thoughts on Hong Kong as a commodities trading hub.  Our panel discussions also promise to be lively.  The first will focus on what metals trading will look like in 10 years’ time, while the second will examine the impact of China’s reforms on the metals market.  We are also very honoured to have Shanghai Futures Exchange Chairman Yang Maijun, Dalian Commodity Exchange Chairman Liu Xingqiang, Zhengzhou Commodity Exchange Vice President Wu Keli and Peng Gang, Vice Chairman of China Futures Association, for a panel discussion in the afternoon.  They will share their insights and visions on the internationalisation of the Mainland commodities markets.  As HKEx is a bridge between the Mainland and overseas markets, we hope to work with our Mainland counterparts and come up with a win-win formula for cooperation and mutual support that will advance commodity connectivity between the Mainland and Hong Kong.  Our goal is to join hands with the Mainland and turn visions into reality as soon as possible.

On Friday, we will host our first ever Women in Commodities Luncheon.  The event will honour women in the commodities industry and provide them with an opportunity to network with other inspiring female leaders.

I’ve only touched on a few of the exciting things on our agenda this week.  There will be many more.  LME Week Asia got off to a strong start last year, and we’re excited about continuing to build it into an important annual event on Hong Kong’s calendar. 

 

Note: The five largest coal users – China, US, India, Russia and Japan – account for 76 per cent of global coal use, according to the BP Energy Survey 2013 and analysis by a major research and brokerage firm.  China is also a major thermal coal user, accounting for more than 45 per cent of global use, according to the National Bureau of Statistics of China.  Led by China and the large economies of Japan and South Korea, Asia accounts for more than 50 per cent of global thermal coal use, according to the US Energy Information Agency.        


 

Share your thoughts with us. Email: ceo@hkex.com.hk

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