LME warehouses have near-total coverage of the major tin-using countries and regions, and currently, Asia is served by three warehouses, located in Taiwan, South Korea and Singapore. Crucially, however, the LME is absent from China.
LME CEO Matt Chamberlain was quoted as saying that “Having a warehouse in mainland China will be the last piece of the puzzle for our global warehouse network”.
An LME warehouse in China could allow the exchange to compete more strongly with the Shanghai Futures Exchange. However, the LME warehousing system has come under scrutiny recently, with some claiming that the historically low tin stocks are a function of the LME tin contract.
Our view: Although new warehouses have no direct effect on tin production or consumption, the arrival of the LME into China could still be significant. Currently, Chinese tin traders must wait for the arbitrage between the London- and Shanghai-based exchanges to become large enough to cover export charges and VAT. However, with the introduction of a Chinese LME warehouse, traders could maintain their profit margin at a lower arbitrage – assuming warehousing costs less than exporting. This could see more tin entering the international market, rather than remaining within China.