The London Metal Exchange has approved the Hong Kong Special Administrative Region as a warehouse location for the first time as the bourse seeks a stronger link to the Chinese mainland — the world’s biggest metals market.

The Hong Kong storage site will be permitted to hold the LME’s main base metals, including copper, zinc and aluminum, the LME said in an emailed statement. It will become an active delivery point three months after the approval of the first warehouse company and location.

The HKSAR government in a statement welcomed the decision.

"Our country is the world's largest consumer of industrial metals. Developing relevant commodity exchanges will drive the development of a financial, shipping and trade center,” Secretary for Financial Services and the Treasury Christopher Hui Ching-yu was quoted as saying in the statement.  

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He noted that Chief Executive John Lee Ka-chiu's 2024 Policy Address in October announced the creation of a commodity trading ecosystem to attract relevant enterprises to establish a presence in Hong Kong.

“Approving Hong Kong as an LME delivery point will bring efficient and comprehensive services to the global metal markets, leveraging Hong Kong's institutional and legal advantages, and demonstrating our role as a 'super connector' and 'super value-adder' to connect mainland and international opportunities,” Hui said.  

“This will help consolidate and enhance Hong Kong's position as an international financial, shipping and trade center," he added.

The Hong Kong warehouse will add to the bourse’s sprawling global network that at times holds millions of tons of industrial metals. The LME has long wanted a shed in the mainland to make it easier for clients there to deliver or withdraw metal.

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Matthew Chamberlain, the LME’s chief executive officer, said in the emailed statement that the SAR "provides the natural hub for connectivity" to the mainland market “that is so important to market participants and the wider metals industry”.

There has been “significant interest from warehouses, landlords and metal owners” in the plan, he said.

Getting closer

The LME does not itself operate warehouses, but licenses third-party companies to run them according to the bourse’s global regulations. The next step in the Hong Kong project is for warehouse firms to apply to the LME.

A nearer delivery point should blunt price disparities between the mainland and the rest of the world, reducing opportunities for arbitrage trades, according to traders. It could also facilitate more mainland exports as domestic capacity keeps growing.