LME Asia Week in Hong Kong Provides Leadership in a time of need
LME Asia Week is upon us, and it is always an exciting time at Straits Financial Global Offices. As an FCM with multiple offices across Asia, we have colleagues participating in the events from around the globe.
LME Asia Week
, hosted by the Hong Kong Exchange (HKEX) and London Metal Exchange (LME), has lured international participants for years based on its unique spotlight on the state of the metal markets and in-depth sessions on precious, base, and ferrous metals. This year’s theme will focus on the state of the industry, with a spotlight on China and the rest of Asia. As formidable leaders in the metal derivatives space, LME and HKEX are historically the key regulated exchanges for trading and hedging metals. LME itself has over a century of experience and was set up in 1877 for metal merchant trading in London; the Hong Kong Exchange later bought LME in 2012. The coming together of exchange leaders at LME Asia Week arrives at a much-needed time when producers and hedgers are concerned about global price shocks and base metal volatility caused by geopolitical tensions, US sanctions against Rusal, and trade tariffs.
The sixth-annual LME Asia Week was the biggest ever, with over 800 delegates registered to attend the main seminar event and around 1,900 guests registered to attend the LME Asia Dinner.
As the lifeblood of industrial production, base metals are the backbone of the economy in an ever-changing world. Metals like steel are used to build everything from homes to bridges. Over the past year, steel scrap futures trading has seen tremendous growth at LME and is the volume leader with a 526% increase in volume from 2016-2017 with more than 300,000 contracts traded. Steel rebar futures have kept pace rising 646% in volume over that period with over 64,000 contracts traded. One factor for the rise in volume is China is recycling more of its steel consumption, and stockpiles are growing. This activity has led to more inventories and a greater need for hedging activities. Another significant increase in volume is in lead Traded Average Price Options (TAPOs) at LME with a 1441% spike in volume last year from 2016.
So far for Q1 2018, the big volume drivers for the exchanges are Aluminum, Copper, and Zinc.
Key Regional Developments
In Asia, the metal and commodities markets are quickly evolving with China entering the international arena of futures trading with the launch of the INE Crude Oil futures contract
and most recently, the opening up of iron ore futures trading to foreigners at the Dalian Commodity Exchange (DCE).
These new contracts provide traders an opportunity to trade in a new market that is aiming to increase its pricing power to the rest of the world. Iron ore futures at DCE have already eclipsed trading at the Singapore Exchange (SGX) with 25 more times volumes traded. In 2017 alone, iron ore futures volume at Dalian reached 33 billion tonnes versus the global annual trade of approximately 1.5 billion tonnes. The contracts have already become a leading indicator of the world and are attracting more institutional level participants.
Iron ore annual volume at DCE vs SGX
China’s opening up of financial markets should increase arbitrage opportunities between Asia’s metal and commodity exchanges with foreign participants now taking advantage of cross-border trading opportunities in and out of Asia. New contracts in Asia provide pricing power to Asia during a time when tariff levies are particularly threatening to Asian countries. Still, Asia forges ahead with new developments and announcements including:
Also, some key concerns we see coming out of LME Asia Week:
- Section 232 brings uncertainty in metal markets. In February 2018, the US Commerce Department publicly released Section 232 reports on imported steel and aluminum which concluded that the quantities of steel imports (four times that of exports) justified President Trump to take action to protect the long-term viability of the US steel and aluminum industries.
- Sanctions have caused highly volatile trading in metal markets. US sanctions against Russian metal producer Rusal have removed nearly 3m tonnes of aluminum production from global markets, equating to roughly 6 percent of the world’s supply. Since the sanctions were announced, aluminum prices have risen nearly 80% with nickel and palladium also experiencing large price moves after the sanctions. With more talks of tariffs on the horizon, headline risk and volatility remain elevated.
Trade the World with an account at Straits Financial
In this uncertain new environment, it has become more critical than ever to have access to international futures exchanges. As a global FCM, Straits provides access to the Hong Kong Exchange, LME, Dalian Commodity Exchange as well as other international exchanges like CME Group, NYMEX, and ICE. With an account at Straits, clients can have access to a global arena of metal futures and commodity trading exchanges.
To find out more about international metal futures trading at Straits, please contact us in the US at +1 312-462-4499 or in Singapore at +65 6672-9669. For daily information on the markets, please sign up for our daily commentary reports here
and follow us on social media on Twitter @StraitsFinancia
and LinkedIn here
DISCLAIMER: This document is issued for information purposes only. This document is not intended, and should not under any circumstances to be construed as an offer or solicitation to buy or sell, nor financial advice or recommendation in relation to any capital market product. All the information contained herein is based on publicly available information and has been obtained from sources that Straits Financial believes to be reliable and correct at the time of publishing this document. Straits Financial will not be liable for any loss or damage of any kind (whether direct, indirect or consequential losses or other economic loss of any kind) suffered due to any omission, error, inaccuracy, incompleteness, or otherwise, any reliance on such information. Past performance or historical record of futures contracts, derivatives contracts, and commodities is not indicative of the future performance. The information in this document is subject to change without notice. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices.