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HKEx’s first-quarter profit up slightly on boost from LME

Keywords: Tags  Charles Li, Hong Kong Exchanges and Clearing, LME, London Metal Exchange, Metal Bulletin, Shivani Singh

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 LME business.

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 LME’s financial contribution in the next two years will be limited."

The LME’s "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 LME’s 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 exchange said.

HKEx’s other plans include a network of LME warehouses in China, as well as new metals products for the Hong Kong and mainland China market.

HKEx’s 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, LME’s 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, LME’s largest contract, saw a volume growth of 8 percent year on year in the first quarter of 2013. Zinc’s comparable growth was 6 percent, while nickel and tin turnover increased by 21 percent and 28 percent, respectively.

Lead’s 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.

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