LME WEEK ASIA 2016 - Chinese players turn sour on metals - Sucden director

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Kathleen Retournekathleen.retourne@fastmarkets.comJoint News Editor - Europe+44 (0) 20 7337 2144

Hong Kong 13/06/2016 - Chinese market participants are trading everything but metals because interest in the sector has slumped, Sucden Financial non-executive director Jeremy Goldwyn said.

Instead, growth has been in financial products, agricultural products and equity, he told FastMarkets on the sidelines of LME Week Asia here.

"The focus has moved. The Chinese clients have always been arbitragers… I think the metals trade got so crowded that some of the profitability in those arbitrage trade just got tighter and tighter - never mind the [trading] fees and everything else - and they have looked for alternatives," he said.

"Why would you trade metals? People have been historically confident to trade those products to make money because there is a natural need for it. But that is not growing enough to make it interesting," he added.

Chinese imports remain high but this mostly reflects domestic financing - the "money boys" are now focused on other markets, Goldwyn added.

"It's a Chinese thing - their economy is changing which has led them to look at other opportunities but I think it is largely a simple numbers game and that the profitability of that business [has] diminished,” he added.

Other factors acting as drags on the metals markets are the political fallout from the Qingdao fraud scandal, the increasingly crowded repro business and tighter financing, he added.

And although Chinese bonded material has risen, this was not for the purposes of consumption but instead was for domestic repro business. This unsettled premiums, prompting deliveries onto the LME. But physical copper in China is trading at a discount.

Still, the aggressive shorting of the copper market that dominated this time last year has eased although there could be a fresh wave if economic instability was exacerbated by a Brexit or fears about the outcome of US elections.

Trading in metals has therefore become increasingly tough - at a time of customers feeling the pinch from LME fees and traditional brokerages are seeing a dip in profits, LME metal trading has taken a back seat.

"We like the LME as it is a more lucrative market from commission generation but that gap has changed dramatically the last few years," Goldwyn said "[The] gap has narrowed and it is less profitable. For brokers like us it is not as critical [to trade LME] - as long as we have the clients and they are trading something, I don’t mind and the volumes generally are quite good."

(Editing by Mark Shaw)



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