Hong Kong Exchanges and Clearing Limited (HKEX)-owned London Metal Exchange (LME) announced in April this year the approval of the first four metal delivery warehouses located in Hong Kong, with operations expected to commence as early as July. Invest Hong Kong (InvestHK) played a significant role as a "matchmaker" in this process. Benjamin Wong, Head of Transport & Logistics and Industrials at InvestHK, stated in an interview with Hong Kong Wen Wei Po last week that the department is currently in contact with about 10 warehouse operators. He anticipated that the addition of LME delivery warehouses in Hong Kong would create 1,000 related jobs, driving the development of the local commodity market, insurance, finance, trade, and financing industries. Additionally, in the current geopolitical climate, it will play a role in ensuring the security and stability of the national metals supply chain.
According to Benjamin Wong, since the LME included Hong Kong in its global warehouse network as an approved delivery location and began accepting applications from warehouse operators to store LME-registered metal brands, InvestHK has made significant progress in this area. These included preparatory work with HKEx and the Financial Services and the Treasury Bureau, meetings with the LME to understand their needs, providing advice on local transportation and import/export regulations, facilitating cooperation between LME and Hong Kong operators, enhancing international operators' understanding of the local market, and acting as a "GPS system" for inter-departmental collaboration.
He said that LME delivery warehouses are metals storage facilities with high load-bearing requirements, which differ from other logistics operations in Hong Kong. Therefore, assisting the LME in finding suitable warehouse operators in Hong Kong is particularly important. InvestHK played the role of a "matchmaker," facilitating connections between various LME-approved warehouse operators and local warehouse operators in a "many-to-many" format. After assisting them in completing operational negotiations, the parties would then discuss specific commercial details themselves. He added that when LME-approved warehouse operators select Hong Kong warehouse operators as partners, in addition to considering facilities, they also consider whether the operator has experience in handling metals.
Regarding subsequent applications, Benjamin Wong revealed that Invest Hong Kong is in contact with about 10 warehouse operators, some of whom are in discussion about cooperation and intend to apply to become LME-approved warehouses in Hong Kong. Others have not yet found suitable partners, and InvestHK will continue to introduce potential partners to them. He added that the first batch of delivery warehouse operators were mainly small and medium-sized companies, while the second and subsequent applicants are expected to be larger companies. Larger companies require more space and have higher requirements for supporting facilities.
He pointed out that Mainland China, as a major producer and consumer, accounts for nearly 20 percent of LME's global inventory business. LME's warehouses in Asia are located in Japan, South Korea, Malaysia, and Singapore, with nearly 80 percent of the inventory related to China. Therefore, Hong Kong, as Mainland China's gateway to the world, can take full advantage of its geographical and logistical advantages. Many warehouse operators are very interested in establishing LME-approved warehouses in Hong Kong.
When asked about the economic contribution of the metals delivery warehouse industry to Hong Kong, Benjamin Wong pointed out that the metal storage logistics industry has had limited development in Hong Kong in the past. The current contribution of LME-approved delivery warehouses in Hong Kong is not only about increasing logistics and storage business. The LME ecosystem is a combination of financial platforms, warehouses, and logistics supply chains. In addition to promoting the development of local metals delivery and warehousing logistics businesses, it can also drive the development of related industries such as insurance, finance, trade, and financing, further leveraging Hong Kong's advantages as an international financial centre and bringing new business opportunities to the financial industry.
Using Malaysia as an example, Benjamin noted that LME's current warehouse inventory in Malaysia is about 850,000 tonnes, with a rental fee of about 50 cents per square foot, generating annual storage revenue of USD 150 million, while also driving growth in related transportation, financing, and insurance industries. He estimated that the global metals and commodity trading ecosystem can contributes more than US$ 100 billion to the economy. The establishment of LME delivery warehouses in Hong Kong and the development of related industries will, in the long term, create 1,000 new jobs in Hong Kong.
Furthermore, given the current geopolitical climate, the establishment of LME warehouses in Hong Kong can ensure the security and stability of China's metal supply chain. Benjamin pointed out that Trump's tariff policies are disrupting the global supply chain and reducing economic efficiency. Hong Kong can leverage its advantages to help companies increase business and play a role in ensuring the security and stability of the national metal supply chain. Mainland China is the world's largest user of metals, and Hong Kong has extensive experience in supply chain management, as well as the world's largest offshore RMB pool. Hong Kong can promote the use of RMB transactions by mainland and overseas companies, stabilising the supply chain and enhancing financial efficiency.
LME Warehouses Facilitate Hong Kong's Logistics Industry Upgrading and Transformation
The London Metal Exchange (LME) recently approved the first four storage facilities in Hong Kong, operated by three warehouse operators. Each operator comprises a pair of companies, including an LME-approved warehouse operator and a local warehouse company. InvestHK explained the benefits of such a combination: the former understands LME operations and has rich operational experience, while the latter is familiar with local conditions and has its own storage facilities. Their cooperation can significantly reduce operational costs and risks.
Among them, Singapore-based GKE Metal Logistics partnered with China Resources Logistics to operate two warehouses, approved for storing aluminium alloy, primary aluminium, copper, nickel, lead, tin, and zinc. Henry Diaper collaborated with Sinotrans (Hong Kong) Storage to operate one warehouse, approved for storing aluminium alloy, lead, tin, and zinc. PGS (East Asia) teamed up with Fung Ho Supply Chain (Hong Kong) to operate another warehouse, approved for storing aluminium alloy, primary aluminium, copper, nickel, lead, tin, and zinc.
China Resources Logistics: Promoting the Development of Multiple Industries
Wu An, Managing Director of China Resources Logistics (Group) Ltd, stated in an interview that the establishment of LME-approved warehouses in collaboration with GKE not only adds a new warehouse business to the company but also opens up other ancillary businesses, such as transportation, customs clearance, and even mainland warehouse services. He believes that Hong Kong, as one of the Greater Bay Area cities, has a vast user network. Introducing metal and bulk commodity trading businesses in Hong Kong will not only benefit the warehousing industry but also drive the development of related industries such as finance, transportation, and mediation and dispute resolution, helping to consolidate Hong Kong's status as an international trade centre, shipping centre, financial centre, and mediation centre.
As a local warehouse operator, Wu An pointed out that the company will operate relevant warehouses under the guidance of LME-approved warehouse operators and is currently acquiring related operational knowledge and management standards. In the future, the company will consider applying for other warehouses to become LME warehouses, depending on the demand.
Establishing a Delivery Point at the "Doorstep" to Increase Stability
Kammy Leung, General Manager of the Investment Development Department at GKE Metal Logistics, believes that although global metals consumption and production will not increase due to LME adding a Hong Kong delivery point, it can significantly enhance the stability and efficiency of the LME storage network, providing more warehouse options for the global industry, creating synergies with other LME warehouses in the Asia-Pacific region, and attracting operators using other non-ferrous metals exchanges to "switch warehouses," thereby attracting more goods, metals brands, and even other metals not yet on the exchange list to Hong Kong.
Kammy Leung further pointed out that Mainland China is the world's largest producer and consumer, accounting for about 40 percent of global metals consumption. Hong Kong, as the external gateway to Mainland China, can establish a delivery point at the "doorstep" of the largest user, improving turnover efficiency, stabilising metal prices through shorter distances, higher frequency, and faster transactions, narrowing price differences, and strengthening the stability and resilience of the metal supply chain.
Overall Logistics Costs in Hong Kong Only One-Third of Singapore
Metals transactions involve significant hidden costs, including transportation, financing, and inventory costs. GKE Metal Logistics, a Singapore-based metal logistics company and one of the three LME-approved warehouse operators in Hong Kong, operates two warehouses in Hong Kong in collaboration with China Resources Logistics. Kammy Leung compared the advantages of establishing metal warehouses in Hong Kong and Singapore. If we only consider warehouse rental costs, Hong Kong is twice as expensive as Singapore. However, since Hong Kong metals warehouses can achieve significant savings in shipping costs when servicing Mainland China, Hong Kong's overall logistics costs are only one-third of Singapore's. Therefore, establishing metal warehouses in Hong Kong is still highly advantageous. The Hong Kong warehouses will officially commence operations in July.
Kammy Leung also expressed optimism about the long-term demand for copper, particularly as Mainland China is actively developing the new energy industry. Copper can serve as an excellent conductor in grid reconstruction.
Shipping to South China - 18 Days Faster
Kammy Leung pointed out that Hong Kong's land prices are high, with warehouse rent at least double that in Singapore, and metals prices are 20 percent higher than in Singapore. However, metals and bulk commodity transactions involve significant hidden costs, including transportation, financing, and inventory costs. Since the final metals consumer market is primarily Mainland China, delivering goods from Singapore to Mainland China involves complex procedures and shipping, generally taking about three weeks from delivery to reaching South China. In Hong Kong, the process and shipping can be saved, and multimodal transportation, including trucks, inland river ships, and shipping, can be used, reducing the time from delivery to reaching South China to just three days, significantly saving logistics costs and time.
According to Kammy Leung, athough Hong Kong's warehouse rental costs are double those of Singapore, due to more stable truck freight compared to shipping, and after deducting port fees and towing fees, if the destination is South China, Hong Kong's overall logistics costs (warehousing plus transportation) are only one-third of Singapore's, and consumers can enjoy faster delivery and more economical logistics costs. As for goods shipped to North China, it is believed that warehouses in South Korea will still be the primary choice. Additionally, the group will look for warehouses with strong load-bearing capacity and close to the coast to lower logistics costs to offset rents, overcoming land costs as much as possible.
Copper, Nickel, and Tin Expected to Have Advantages
GKE's approved warehouses in Hong Kong have recently received LME's approval. Kammy Leung stated that the company is planning to invite upstream and downstream industry players to visit the warehouses, with the first batch of metals expected to arrive at Hong Kong ports by the end of June, and official delivery in Hong Kong in July.
He further pointed out that currently, LME Hong Kong warehouses only allow storage of up to seven types of metals. As the Hong Kong warehouses primarily target the South China market, it is expected that storing copper, nickel, and tin, these three medium- to high-value metals, will have advantages, as Hong Kong does not focus on "deep storage" but rather on "short-frequency transactions." The prices of the above metals are relatively high, especially nickel and tin, whose stocks are relatively scarce.
Kammy Leung is also optimistic about the long-term demand for copper, particularly as Mainland China is actively developing the new energy industry, where copper can serve as an excellent conductor in grid reconstruction.
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