Although this move will not threaten LME’s dominance, it could however feel threatened if it does not significantly reduce its long queues and waiting time.
As per three metal industry sources who are familiar with the matter at hand, the CME Group is in the early stages of talking to several warehouse companies so as to globally expand its metal storage network. This strategic move could act as a challenge to London Metal Exchange’s (LME) dominant position in the sector.
Lately, CME has steadily built its network of storage facilities and has gained from the controversy surrounding LME’s warehousing system. Incidentally, CME is the world’s largest operator in the futures market.
The U.S. based exchange has been negotiating with many firms in order for them to join its approved network of warehouses which will hold aluminium, copper, lead and zinc.
“The CME is keen on growing its warehousing system, they want more locations. They want to get more companies involved around the world, in Asia, the United States and Europe,” said a source.
When asked to respond to requests for comments, CME politely declined.
Although sources did not specify the number of warehouses CME is targeting, the move has been seen as a bold challenge to LME. However, catching up with LME is absolutely out of the question.
The three sources preferred the cover of anonymity since they were not authorized to speak to the media.
According to its website, the CME has a network of 24 approved warehouses. While most of these are located in the United States, three are located in Europe, which is a recent addition to store materials for its upcoming new leads.
In comparison, the LME has a network of more than 600 approved warehouses in 37 locations spread across the globe, including Asia. LME is owned by Hong Kong Exchanges and Clearing Ltd.
Sources have revealed that CME’s new moves were part of a move to poach business from LME, which traditionally has been the first port of call for metal producers and consumers. LME has the advantage of being the world’s biggest and oldest metals market.
“The lead and zinc contracts are part of its (CME’s) push to take the LME on… it’s definitely one to watch,” said an industry source.
CME’s moves makes sense in the context of numerous consumer’s bitter complaint of having to wait for several years in order to get deliveries. LME’s has issues with backlogs.
The delays have been beneficial to warehouse owners who collected substantial profits in the form of rent. LME has however woken up too the situation and has vowed to cut down its long waiting time.