LME looks at India as a warehouse hub

MUMBAI: London Metal Exchange (LME), the 129-year old bourse that holds a monopoly in the trading of base metals, could be looking at India as a warehousing destination.

Speaking on the sidelines of a CEO conclave organised by Multi Commodity Exchange in Mumbai, Simon Heale, the former chief executive of LME said: “In principle, it’s an excellent idea as we believe the delivery system should be near the area of net consumption.” He further added that as India’s consumption is growing it would be ’a sensible idea’ to approve warehouses in the country.

Currently, Dubai is a conduit. LME has over 400 warehouses in some 32 locations covering the US, Europe, the Middle and the Far East.

The exchange is laying the groundwork to launch a steel contract in the near future. MCX was the first to launch a contract in this metal. “We are coming out with a price list in association with Platts, to be published from December ’06,” Mr Heale said.

However, he was reluctant to commit to a timeframe as to when the contract would be launched. “The idea of futures is new to the steel industry. We are looking at it in phases, and will wait for investors to get comfortable with the idea as they see the prices,” he said.

Once this happens, it will encourage some over the counter (OTC) trading, and this could be brought on to the exchange platform.

LME also signed a licensing agreement with MCX, allowing the Indian exchange to use LME prices as the basis for settling MCX futures contracts. When asked about what threats and challenges LME faces presently, he said any business that becomes complacent faces threat. He cited the launch of plastic futures, minis, and offering electronic and telephonic trading according to the clients needs as part of the exchange’s initiative to innovate.

Despite confirming that volumes traded electronically had increased in the past few years, he did not put a number to it. He attributed the increased interest in commodities trading to changing views of investors about commodities as an asset class.