SINGAPORE Hong Kong
Exchanges & Clearing Ltd. (HKEx), owner of the London Metal
Exchange, posted a slight increase in first-quarter net profit
and said gains from the $2.2-billion deal for the LME will be
limited in the next two years as costs and lower profit margins
offset trading fees.
Revenues at the HKEx rose 18.5
percent year over year to Hong Kong $2.22 billion ($286.1
million) in the three months ended March 31, boosted mainly by
Hong Kong $210 million ($27.1 million) in trading fees from the
HKEx posted a 1-percent increase
in net profit to Hong Kong $1.16 billion ($149.5 million) in
the first quarter, up slightly over the first quarter a year
ago, primarily on Hong Kong $185 million ($23.8 million)
contributed by LME business, which was offset partly by higher
finance costs, depreciation and amortization.
"The LME is the largest of our
strategic investments. In the medium to long term, it will be
one of our key growth engines," HKEx chief executive officer
Charles Li said on his blog.
"However, the LME fee structure
has yet to become fully commercialized, and the LME is in its
most critical stage of infrastructure investment," Li added.
"Its lower profit margin and the cost of the acquisition mean
the LMEs financial contribution in the next two years
will be limited."
The LMEs "most tangible
contribution will be to help HKEx substantially speed up
connectivity with the mainland market," Li said.
HKEx has told AMM
sister publication Metal Bulletin that it will retain
the LMEs Singapore office, which will focus on markets in
southeast Asia, Australia and India and build a commodities
team in Hong Kong to focus on north Asia and greater China.
LME Clear, the new clearinghouse
for the commodities business, is progressing as planned, the
HKExs other plans include
a network of LME warehouses in China, as well as new metals
products for the Hong Kong and mainland China market.
HKExs capital expenditure
commitments as of March 31 were Hong Kong $987 million ($127.2
million) over the coming two to three years, compared with Hong
Kong $832 million Dec. 31.
But in April, additional capital
commitments of Hong Kong $350 million ($45.1 million) mainly
relating to the remaining phases of developing LME Clear were
approved, HKEx said.
"The capex for Hong Kong has
already peaked, but the LME business has a number of strategic
capex projects, which account for the increase in group
commitments," HKEx said.
In the first quarter, LMEs
average daily volume rose 5 percent to 666,914 lots. March was
the second-busiest month on record for the LME, with an average
of 697,753 lots traded per day, HKEx said.
Aluminum, LMEs largest
contract, saw a volume growth of 8 percent year on year in the
first quarter of 2013. Zincs comparable growth was 6
percent, while nickel and tin turnover increased by 21 percent
and 28 percent, respectively.
Leads turnover fell 1
percent, while copper fell 2 percent.
In a separate statement, HKEx
appointed Paul Kennedy as chief financial officer.
A version of this article was first published by AMM sister
publication Metal Bulletin.