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Chinese Metal

This is boring. Literally boring stuff, but like all boring stuff, it tends to be important.

The London Metal Exchange (LME)10 Finsbury Square London, EC2A 1AJ is the world centre for the trading of industrial metals from lead to gold. In 2018 the LME traded $15.7 trillion and 4.1 billion tonnes of what they call ‘lots’ of metals across the globe.

Hong Kong Exchanges and Clearing Limited (HKEx) bought the 135-year-old LME for an estimated £1.4bn in 2012. The HKEx now promotes itself as one of the biggest market operations in the world and the leader in “China Connectivity.”

HKEx itself was created in 2000 and formed through the merger of The Hong Kong Stock Exchange, the Hong Kong Futures Exchange and the Hong Kong Securities Clearing Company. The merger was designed to increase China’s competitiveness in the global market.

The sale of the LME raised a few eyebrows at the time with the Financial Times reporting (June 2012), “The sale would also deliver a windfall to the banks and brokers who own the LME. At £1.4bn, JPMorgan would receive £151m for its shares, Goldman Sachs would get £132m and the Bagri family, owners of Metdist, would receive £130m.” In the same article, the paper also suggested the Chief Executive of the LME was inline for a bonus of around £10m.

Seven years on following the sale of LME to the HEKx it is widely accepted that the deal has not realised its ambition of building a commodities bridge between the West and China. But as HKEX chief executive Charles Li says, “All you need to think about is if this is the right asset for us. The rest is detail. You don’t worry if the price is right.”

Roll on to December 2019, Valdis Dombrovskis, European Commissioner for Financial Stability, Financial Services and Capital Markets Union has already fired a shot across the UK’s PM Johnson’s bow by warning that Brussels is ready to cut off the City of London’s post-Brexit market access unless the UK stays closely aligned with EU rules after it leaves the EU.

In an interview with the Financial Times (December 2019) Dombrovskis is quoted as saying, “Brussels was willing to grant the UK access through a system of “equivalence” decisions that are already used by banks and brokers in other countries such as Singapore and the US. The EU would be especially vigilant in checking that British rules for ensuring financial stability and protecting consumers remained aligned to the EU’s own standards and would act decisively in the event of any lapses.  Access will depend on Britain not starting to engage in some kind of deregulation.”

Meanwhile, as China maintains one alarming eye on the streets of Honk Kong while accusing ‘foreign interests’ of stirring up the disturbances, the other will be watching the negotiations between the UK and EU. Playing safe The London Metal Exchange has an office on the 7th Floor, MYP Centre, 9 Battery Road, Singapore, although it’s not as if they do not already have one foot in the negotiations.

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