China's LME entry to boost more than harm traders

A bastion of old London trading will meet a new global economic force next year when the London Metal Exchange is expected to admit a top Chinese bank, and for LME traders the benefits of an enlarged market are likely to outweigh share lost to the newcomer.
The Bank of China International (BOCI), the investment banking subsidiary of Bank of China Ltd (BOC), expects to get approval for membership of the LME by the end of the first quarter at the latest, an industry source said. Some LME traders are worried that existing business with Chinese customers will be channelled through BOCI. BOCI could concentrate trade with inland Chinese companies into its portfolio. A futures manager for a large state-owned metals firm in China indeed said the company would be keen to do business on the LME through the bank.
But the subsidiary of the fourth-largest bank in the world's largest consumer of industrial raw materials will also increase overall liquidity in the biggest metals marketplace. "BOCI will know their customers a bit better, so they will have an inherent advantage, but Chinese customers are very price-sensitive," a head of metals trading in London said. "They will be loyal (to BOCI) to a certain extent, but they will occasionally find the grass greener on the other side of the fence."
Currently only about 30 Chinese companies are officially licensed to do business with outside brokers, and others go through companies in Hong Kong, a senior LME trader said.
"Anything that opens the Chinese mainland to further western involvement has got to be good," said a second senior trader at the LME. BOCI membership also will add to the credentials of the 130-year-old exchange as it opens its books to potential suitors.
"This is meaningful because it's the first Chinese bank to get LME membership," said Zhou Jie, an analyst at China International Futures (Shanghai) Co Ltd. More Chinese investors are likely to trade on the LME through the bank, he added. Furthermore, BOCI is likely to be the only Chinese bank to take a place in the LME in the near future. Owner BOC is seen as the most assertive of the four state banks and is ahead of its peers in building up a commodities trading business. Other banks, such as Industrial and Commercial Bank of China and China Construction Bank , have ambitions to expand their commodities business in the longer term, but those plans are all in the very early stages. Agricultural Bank of China is far behind.