LME approves three more warehouse facilities for Hong Kong

The London Metal Exchange has approved three more warehouses in Hong Kong, taking the total to seven, as it increases its presence in the city that is gateway to the world’s biggest metals consumer China.

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.

However mainland warehouses have proved elusive and the LME has instead focused on Hong Kong, which is closer to the mainland than many other locations in Asia.

Hong Kong Exchanges and Clearing CEO Bonnie Y Chan announced the three extra warehouses during the LME Asia Week Conference.

For Hong Kong, commodity warehousing fits in with a plan to diversify and grow the economy.

Financial Secretary of the Hong Kong government Paul Chan Mo-po told the conference audience the region intended to create a commodity trading ecosystem.

However, the additional costs of operating in Hong Kong, where whatever land is available is sold at a premium, have raised questions about the viability of the model compared to other sites in Asia like Korea or Malaysia.

Warehouse costs in Hong Kong are more than double Singapore, according to two industry sources who spoke on condition of anonymity.

The maximum amount warehouse companies can charge to store metal is 51 US cents per metric ton for copper in South Korea and Singapore, but it will be 61 cents in Hong Kong, according to LME documents.

Reuters visited a warehouse run by GKE metal logistics on Wednesday. The 8,000-to-10,000 ton site expects initial cargoes of copper, nickel and tin from late June, General Manager Leung Kam Un said.

(By Lewis Jackson and Liz Lee; Editing by Tom Hogue and Barbara Lewis)