Stranded For Several Years, LME Warehouse Is Expected To Achieve Zero Breakthrough In Tai Wan Area. Qianhai Trading Platform Is Running Smoothly.

Since 2012, after spending 1 billion 800 million pounds on the LME (London Metal Exchange), the HKEx has been actively expanding its commodity futures business, of which the establishment of LME certified warehouses in China is a key link.

Li Xiaojia, chief executive of HKEx, first revealed in May 6th that he was actively communicating with the Guangdong provincial government at the LME Asian Conference. He hoped that with the policy of the development plan for Guangdong Bay and Macao Bay, the LME warehouse would be built in the big bay area. "This is obviously not an easy task, because the existing policies are difficult to change, but we hope to achieve certain breakthroughs and find a way to launch the pilot scheme in the big bay area."

This is the topic once again put on the agenda since the HKEx announced the temporary shelving of LME warehouses in the mainland in 2015. Li Xiaojia said frankly: "in the past three or four years, China's financial system has been under a lot of pressure, including large-scale deleveraging, so our strategic plan for commodities may be slower than previously expected. We think it is time to put forward the question of warehouse again. "

In fact, as early as 2002, LME management has publicly expressed its wish to set up its own nonferrous metal delivery warehouse in the mainland of China. He Jinbi, founder of MEIKO group, revealed that he had already discussed with the Shanghai monetary authority in 2008, and submitted the plan to the State Council. But for various reasons, he was shelved and failed to make any progress.

In July 2008, the notice issued by the Securities Regulatory Commission on Further Strengthening the supervision of physical delivery of commodity futures clearly pointed out that, before the relevant policies and laws and regulations of China's futures market were opened to the outside world, foreign futures exchanges and other overseas institutions were prohibited from designating or establishing commodity futures delivery warehouses in the territory and engaging in other activities related to commodity futures delivery businesses.

At the end of 2013, LME's news on the establishment of a delivery warehouse in the Shanghai free trade area was once rampant. Media reports said that a domestic metal group had begun to apply for the first LME certification warehouse in China, and even completed the infrastructure project in Yangshan deep water port. But it was finally stranded because of the game of multi stakeholder.

Taking the policy of Tai Wan District

However, with the introduction of the "outline of the development plan for the Great Bay area of Guangdong, Hong Kong and Macau", the establishment of LME warehouse in China has once again seen a turning point. The outline of the plan specifically refers to the support of the Qianhai joint trading center of the Hongkong stock exchange to build a bulk commodity spot trading platform serving domestic and foreign customers and explore a new mode of serving the real economy.

In October last year, the HKEx's official trading in Shenzhen Qianhai joint trading center was opened. The first transaction of alumina was traded at RMB 3030 per ton, becoming the first spot price benchmark for alumina in the mainland based on actual transactions. The two largest shareholders of the Qianhai joint trading centre are the HKEx and the Shenzhen municipal government respectively.

"After more than two years of preparation, the territory of Hong Kong Stock Exchange has basically been completed. At present, the Qianhai joint trading center is running smoothly, with the highest daily turnover reaching 15000 tons, and the turnover reached 56000 tons in 4 this year. This is a pure spot commodity platform, and other products such as aluminum ingots and aluminum rods will be introduced this year. Li Gang, CO head of market development at HKEx, revealed at the meeting on that day.

As the most authoritative pricing center of the world's basic metals, LME holds 80% of the global market for basic metal trading. Since LME has not yet made progress in establishing a delivery warehouse in the mainland of China, it has no alternative to establish additional warehouses in other Asia Pacific regions. At present, there are 10 warehouses in Asia, which are located in Busan, Guangyang, Inchon, Nagoya, Yokohama, Singapore, Johore (2) in Malaysia, Klang port in Malaysia, and Kaohsiung in Taiwan, China.

Many industry insiders admitted that due to the failure to set up LME bonded warehouses in the mainland of China, many Chinese enterprises needed to pay a large amount of transportation and warehousing costs and transport goods to or from the mainland of China in the delivery warehouses of other neighboring Asian Pacific regions.

"The largest beneficiary of LME warehouses in China is China's nonferrous metals industry, which is of great significance to the production and consumption enterprises in the industry. We have already put forward relevant motions, and the SFC has replied, which requires further demonstration. With the lifting of the policy, the management system and personnel changes, the establishment of LME warehouse will be able to achieve, which can save a lot of logistics costs for the upstream and downstream enterprises. He said.

It is reported that at present, domestic exchanges are not allowed to set up trading markets for offshore futures in the territory of overseas exchanges, but the Qianhai joint trading center under the HKEx will have its own warehousing and establishment of spot trading volume, and it is expected to achieve mutual recognition of warehouse and warehouse receipt conversion with other warehouses in LME, thus achieving the internationalization of mainland warehousing.

According to the plan disclosed by the HKEx, the commodity spot platform in Qianhai will establish warehousing and logistics facilities besides creating price discovery and trading matching functions, and create a chain that runs through pricing, distribution and physical consumption.

With the introduction of the "outline of the development plan for the Great Bay area of Guangdong, Hong Kong and Macau", the establishment of LME warehouse in China has once again seen a turning point. (Gan Jun)

"Three pronged approach"

As early as in April 2014, the HKEx had described the prototype of the "commodity link". According to the planning at that time, HKEx hoped to replicate the successful experience of Shanghai and Hong Kong, and find a win-win and complementary structure between the mainland and Hongkong exchanges, including the form of cooperation between products. However, the major futures exchanges in the mainland have been reluctant to make a stand.

Li Xiaojia said: "there are mainly three ways to connect commodities: Hong Kong, Hong Kong, Shanghai and Shanghai." He pointed out that at present, he is working with LME on "Lun Tong Tong" to discuss the US dollar denominated Mini futures contracts trading in Hongkong to facilitate investors in the Asian time zone in LME. As for futures exchanges linked to futures transactions in the mainland, HKEx is actively working with futures exchanges in Shanghai, Zhengzhou and Dalian to explore the possibility of achieving product interconnection and futures northward links.

In recent years, the mainland commodity exchange has accelerated the pace of opening to the outside world. Following the listing of China's crude oil futures in March 26th last year, the Dalian business exchange's iron ore futures also formally introduced overseas participants in May 4th. Take crude oil futures as an example. As of the middle of 4, the number of foreign investors participating was significantly higher than that at the beginning of the listing, and the proportion of trading and holding positions reached 15% and 20% respectively.

However, Hu Yuyue, director of the securities and Futures Research Institute of Beijing Technology and Business University, believes that because the RMB is not yet convertible freely, it is difficult to get the approval of the international market by relying on some single varieties. The "future period" means that the internal and external, and the upper and lower levels are interlinked and echoed, and the prices both inside and outside the field can promote each other.

Li Gang said that the Qianhai joint trading center plans to form a benchmark price for China's spot market, and based on this, form derivatives such as futures, so that Chinese prices will "go abroad". Meanwhile, in May 7th, HKEx signed a memorandum of understanding with Shanghai Steel Union Agel Ecommerce Ltd and Wuxi stainless steel electronic trading center to help spot prices of the two metal spot trading platforms in the mainland be recognized by international investors through the platform of the Hong Kong stock exchange.