China should not be allowed to buy the LME
For 135 years, the London Metal Exchange has been at the heart of world industry, setting prices for metals from aluminium to zinc.
By Damian Reece, Head of Business
6:45PM BST 29 May 2012
Its role in global commodity trading is a key piece of market infrastructure for buyers and sellers and consequently one of the reasons for London’s pre-eminence as a trading hub.
But, almost unnoticed, this key institution is about to be sold for more than £1bn (on profits of just £10m).
While many City institutions have ended up in the hands of foreign investors, the fate of the LME is a cause for particular concern.The lead bidder is China, which also happens to be the world’s biggest consumer of industrial metals, including 40pc of world copper.
Placing the entity that sets prices for industrial metals globally in the hands of the biggest consumer of industrial metals globally may not be a sensible move for the rest of the world. There are clear conflicts of interest, regardless of the fact that it would be China in control.
Not only that, but the LME operates a network of strategic warehouses around the world in which metals are stored. Again, these would come under the ownership of China. Its influence over LME membership and the price discovery process would be significant.
The bid is being made though Hong Kong Exchanges and Clearing in which Beijing is the biggest shareholder, choosing the chairman and chief executive.
Its ownership of the LME has to be approved by the Financial Services Authority, whose assessment risks being purely technical rather than considering the wider geo-political concerns. The Treasury has no power to intervene.
This is not commercial nationalism on my part. The LME represents something far more important to world trade and shouldn’t come under the control and influence of any single government.
There is one other bidder, the US InterContinental Exchange, but if the Chinese win, the FSA should reject it as neither sound or prudent.