HONG KONG (Reuters) - A surprise pickup in trading volumes at the London Metal Exchange (LME) following years of stagnation is expected to be a dominant theme at the industry's largest event in Asia this week.
Total LME turnover rose by 3 percent in the first quarter of 2018 in a trend that is likely to continue, boosted after U.S. sanctions hit the world's No.2 aluminium maker, Russia's Rusal (HK:0486), setting off a trading frenzy in the London bourse's flagship aluminium contract.
The revival in volumes, which has also been stoked by a reduction in fees for shorter-dated trades, will be a topic welcomed by LME parent, Hong Kong Exchanges and Clearing Ltd (HK:0388), at this week's LME Week Asia conference in Hong Kong.
The impact of sanctions on the aluminium market will also be a key theme. The LME suspended Rusal from its list of approved brands from April 17 after some members raised concerns about settling LME contracts with sanctions-hit companies. Aluminium trade volumes marked a record two days later.
Sanctions against Rusal were announced in April along with other Russian companies, businessmen and government officials, in one of Washington's most aggressive moves to punish Moscow for activities including alleged meddling in the 2016 U.S. election. Russia has denied such accusations.
The Rusal metal remains suspended but the LME is monitoring the situation after the U.S. Treasury Department gave customers of the aluminium producer more time to comply with regulations last month.
The metals industry is also waiting for the bourse to detail new plans for cash-settled contracts that may include new energy materials such as cobalt and lithium, used in batteries. It has said it plans to launch cash-settled regional aluminium premiums, an alumina contract and a European alloy contract late this year to early 2019.
Attendees will also be looking for any updates after HKEX last year announced with great fanfare a spot metals trading platform in Qianhai, Shenzhen.
"While we do not have a timetable for when (the platform) will go live, it has not been shelved," an HKEX spokeswoman said, adding that the bourse was working to adjust its business model to serve the mainland Chinese market.
Hong Kong's metals business also risks being overshadowed by developments on the Shanghai and Dalian exchanges where energy and iron ore contracts have been opened to international investors for the first time.
Officials say China plans to open more of its futures contracts to foreign investors - which could include other metals - as part of a bid to boost its sway over pricing of major commodity imports.
While a new mainland contract could boost volumes on the LME through arbitrage trades, as has been the case with nickel, longer-term it may threaten the London bourse's dominance in setting international price benchmarks.
An LME spokeswoman said that the exchange was confident it would "remain the most trusted global price" due to the "significant effort that we invest in working with industry".