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Commodities

LME looking to tap Asian demand, chief says

LONDON -- The London Metal Exchange aims to attract more market players in China, India and other parts of Asia, CEO Garry Jones told The Nikkei, amid intensified competition from rivals around the world.

     Copper and aluminum prices plunged in 2015, and the total trading volume on the exchange fell 4% from 2014. The outlook "is cautious but not overly negative," Jones said in an interview, pointing to the recovery in nonferrous-metal prices.

     But the Chicago Mercantile Exchange and the Shanghai market both grew last year, even as trading on the LME languished. Shanghai is driven primarily by Chinese retail speculators, while the CME relies heavily on algorithmic trading, Jones said.

     They are "not the same market" as the LME, whose client base consists largely of manufacturers and other spot players that take physical delivery of the commodities, Jones said. He expressed confidence that the LME will remain the benchmark market for nonferrous metals.

     Increased trading in Shanghai could also benefit the LME through increased arbitrage trading between the markets, Jones said. He said the CME, which is working to strengthen its nonferrous segment, has only really been dealing in copper.

     Jones cited winning new clients, mainly in Asia, as a top priority for the exchange. The LME added 200 new trading IDs through a program introduced last year to encourage participation in the exchange, employing such means as lowering fees for companies thinking about joining.

     Many European and American financial institutions have retreated from the commodities market amid tougher regulations. But Eastern banks are replacing Western capital, Jones said.

     China Construction Bank acquired a U.K.-based LME ring dealer earlier in April. Jones expects more Chinese players to seek access to the exchange. He will encourage companies in Japan, South Korea and India to take part.

     It took a year to deliver aluminum from LME warehouses in the early 2010s. Prices for aluminum futures rose significantly compared with spot prices, eroding investors' trust in the exchange.

     LME reforms to resolve the issue have been received favorably by the market, according to Jones. The queue has shortened significantly, and the gap between the futures and spot prices has narrowed, he said.

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