00:00Besides the gathering this morning, I understand that you're opening some more warehouses in Hong Kong later on this afternoon.
00:06Can you give us a sense of how profitable warehouse space is in Hong Kong at the moment when you consider factors like transportation, labor costs, etc.?
00:18Yeah, absolutely. And great to be here.
00:20So when we actually at this event last year announced our intention to set up warehouses in Hong Kong,
00:28we absolutely acknowledge that Hong Kong is a higher cost jurisdiction given land costs, given logistical costs.
00:36But, you know, some of that volatility that you were talking about in the copper price,
00:41I think that really makes the point around the economics because when there is market tightness, perhaps a backwardation or a squeeze,
00:50then the physical metals community needs to be able to get metal into warehouses and they want those warehouses to be close to where they are,
00:58particularly close to the metal centers of mainland China.
01:01And in that case, they'll be willing to pay for that logistical convenience, that logistical flexibility.
01:08And we see that as very much underpinning the economic case for the warehouses here in Hong Kong.
01:14Yeah, of course, a year ago when you made that announcement, nobody really foresaw some of the tariff and trade upheaval that we've got now.
01:23Can you give us a sense of how industry flow, inventory flows have changed in the wake of what we've seen in the trade environment?
01:31Yeah, it's a great question because I think you, as always, have this combination of fundamental and technical factors.
01:40So from a fundamental perspective, there's no doubt that there's been a bit of softness in the metals prices.
01:46You're taking copper as that great economic bellwether.
01:50You're down about 7% in April, given the global macro uncertainty that's been engendered by some of these tariff announcements.
02:00But then I think actually more pronounced has been some of these technical effects.
02:04So, you know, copper again, we've seen this significant flow of metal out of Asia into the U.S.,
02:12trying to get onshore ahead of any potential tariffs coming into play,
02:16which has resulted in this significant stock shift out of particularly our warehouses in Asia over into the U.S.
02:24So you've got this combination of fundamental and technical factors undoubtedly driving volatility.
02:29You know, we've seen a 20% swing in copper prices through April.
02:34But ultimately, you know, that's what the exchange is here to help people manage.
02:38And it does create trading opportunities.
02:41When it comes to the warehousing issue, there's obviously some detriments when it comes to higher transport labor costs for Hong Kong.
02:48What are the biggest concerns that you're hearing on this?
02:51And how do you envisage Hong Kong will compare to other hubs like Singapore?
02:55Yeah. So, again, I think the use of the warehouses may be slightly different in Hong Kong.
03:04So I probably wouldn't be expecting to see the long-term storage of some of our lower-value metals like aluminium.
03:13You know, we see a lot of that in the lower-cost hubs of, say, Malaysia or of Taiwan or of South Korea.
03:21I think what the use case that I'm hearing from our clients, particularly in mainland China, for the Hong Kong warehousing is that when there are these market swings,
03:34and as we know, the export-import arbitrage for the mainland China metals business can open and close quite quickly,
03:41so that when there are these swings, you have the metal right at the doorstep of mainland China.
03:49And so that, I think, really goes to offset those logistical costs, because people will pay, we believe,
03:58for the convenience of being 36 hours trucking time from Shanghai.
04:04So, as I say, I think it will very much be that more logistical use case, which, of course, is what the Hong Kong logistics industry is so good at.
04:16When it comes to the impact of tariffs, what do you see as a disruption on flows?
04:20Is there going to be meaningful flows out of the U.S.?
04:23Well, as I say, I think we're in this initial period where, because, using copper as the example,
04:34because those tariffs haven't actually come into effect, we're undoubtedly seeing some rerouting of flows as people try to get ahead of the tariffs.
04:43Now, I think once tariffs come in, and we've seen this already on aluminium, where, of course, there are the 25% section 232 tariffs already in effect in the U.S.,
04:53what you tend to see is that there isn't a huge degree of disruption, because the LME has always been this global price.
05:03We were set up in 1877 in a much higher tariff environment even than today, and that means that we benefit from this duty-unpaid structure.
05:12So we very much try to be that global baseline price driven by fundamental supply and demand, not driven by the tariff policies of any one country or region.
05:23You then have regional premiums and the merchanting business of bringing the business into and out of particular countries.
05:30But actually, in terms of that global price that we pride ourselves on maintaining, we don't see that tariffs, once they are set,
05:38are fundamentally going to change the way that the market operates.
05:41Matthew, you mentioned a moment ago an appetite to have inventory closer to where it's potentially going to be used.
05:50Considering that, what do you think is an appropriate inventory size for, say, copper in Hong Kong?
05:58Yes. So we're not really in the business of setting what that inventory should be.
06:03That's ultimately going to be driven by the market.
06:07But I think the fact that we now have seven licensed facilities here in Hong Kong with five different operators,
06:16which between them could easily, I believe, store 50,000, 100,000 tons if that were the market's request.
06:25I think that gives you a sense for what the market might be thinking, because people wouldn't be setting up warehouses if they didn't feel there was that demand from their end clients.
06:37We can look at the authorized square footage and we can kind of back calculate from there.
06:42So, you know, we're certainly set up for now for inventories of that size, not for me to say what inventories should be,
06:50but I feel very confident that Hong Kong, as a LME metals hub, would be able to accept inventories of that size.
07:01What are some of the broader ambitions for the region then? What next after Hong Kong?
07:06Yeah, so Asia is a hugely important part of our business.
07:14I mean, if I look at the statistics, 85 percent of our warehouse metal now sits in Asia.
07:22And then on the producer side, 100 percent of the tin on LME warrant is produced in Asia, two thirds of the nickel, 50 percent of the copper.
07:32So I think we really, since the acquisition by Hong Kong exchange back in 2012, it's been a big part of our business model to be as close to the Asian metals community
07:45and the Asian metals industry as possible.
07:47And a number of the initiatives that we are now looking at, you know, be that our data on LME passport, be that our work on sustainable metals with our partners at metals hub.
08:02I think all of those things are very relevant for the Asian region and for the fantastic technology leadership that many of the Asian metals companies are now exhibiting.
08:14So, you know, we're going to be working really closely with our friends and partners here.
08:18You know, a lot of good conversations today because, you know, we are a global network, but the global metals industry does have a huge Asian component
08:27and we need to make sure we're servicing them as well as possible.
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