October 30, 2017 / 5:02 PM / a year ago

LME plays long game on China warehousing, Li a 'patient' player

LONDON (Reuters) - The London Metal Exchange still wants to have LME-registered warehousing in mainland China but has not recently pushed the long-held ambition, HKEx Chief Executive Charles Li said.

Head of the Hong Kong Exchange Group Charles Li takes parts in a Q & A discussion at the London Metal Exchange Seminar 2017 at the Queen Elizabeth II Centre in London, Britain October 30, 2017. REUTERS/Mary Turner

Prospects for LME warehousing in China, the world’s biggest metals consumer, had been a key plank of HKEx’s plans when it paid $2.2 billion for the London institution in 2012.

But the path to achieving that aim has not been smooth.

“We’re playing a big chess game with China. The LME ... is one of the key moves. Sometimes you have to balance where other moves get you more yield now and that’s when you want to trade,” said the CEO of HKEx.

“LME warehousing is one of those things where I want to wait until the right moment ... Right now we are not pushing that. I’m a very patient player,” he said.

About a year ago, the LME launched an electronic tracking system for warehouses with non-LME-registered metal called LMEshield. This followed a $3 billion fraud three years ago at China’s Qingdao port in which a trading firm allegedly duplicated warehouse certificates to pledge a cargo multiple times as collateral for bank loans.

Another warehouse fraud this year has sparked some new interest in LMEshield.

LMEshield aims to provide similar security as the LME’s existing LMEsword system, which provides the origin and title of metal delivered against LME futures or stored in LME-certified depots.

Li said other initiatives had taken precedence recently.

“Equity connect, bond connect and building the spot (market) are better trades that have cost me a lot less and yield a lot more,” he said.

“Nothing in China can be pushed through. It’s all a trade ... For the last six months the right move is no move. I think starting next year is probably the time to move quite a few big pieces again.”

Reporting by Peter Hobson and Veronica Brown; Editing by Edmund Blair

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