LONDON (Reuters) - The London Metal Exchange (LME) is set to approve the expansion of its global metals warehousing network into Hong Kong before the end of this year, three sources with knowledge of the matter said, opening the door to mainland China.
Registering warehouses in China, the world's largest consumer of industrial metals, to store metal traded on the LME has been a strategic aim since Hong Kong Exchanges and Clearing (HKEx) bought the LME in 2012 for $2.2 billion.
Expanding into Hong Kong would mean a significant boost to LME trading volumes.
In a presentation made to the LME's warehousing committee last December, seen by Reuters, the exchange said companies in the region had indicated interest in Hong Kong as a place to store industrial metals as an alternative to mainland China.
"An LME warehouse in Hong Kong could be seen as a showcase for in-depth cooperation between Mainland China and Hong Kong," the presentation said.
"The LME is actively exploring listing Hong Kong as an LME warehouse location, as part of our commitment to ensure we provide maximum global connectivity for the metals community," the LME said in response to a request for comment.
"The process for listing a new location in a new jurisdiction may take some time, but we are making good progress ... and we hope to be able to provide an more detailed update by the end of the year."
Since announcing this potential development in LME Asia Week, the LME has received very positive feedback from HK logistics companies and other stakeholders.
The LME has been working to identify sites that could rival those that have long benefited from proximity to China including Singapore, Malaysia and Taiwan - all are major storage locations of LME-deliverable metals.
One source with knowledge of the matter said the LME was working with Hong Kong authorities on metal warehousing space at the port, "as a temporary measure".
"The aim is to eventually move inwards to the New Territories, easier for the trucks coming from China," the source said.
Three sources said the exchange had been looking at a number of sites further inland in Hong Kong's New Territory area.
Some zinc and copper producers in Southern China, close to the border and the mainland, have shown interest in storing metal in Hong Kong, a second source with knowledge said.
The second source said some locations in New Territories could be used for warehouses at a "reasonable cost", but some infrastructure including roads will have to be constructed.
A third source said the LME wants its registered warehouse companies to subcontract local firms.
(Reporting by Julian Luk; editing by Veronica Brown and David Evans)
By Julian Luk and Pratima Desai