London Metal Exchange chief to quit after Hong Kong sale triumph

LONDON Thu Jun 6, 2013 1:07pm EDT

LME Chief Executive Martin Abbott attends the 7th World Copper Conference in Santiago April 10, 2008. REUTERS/Victor Ruiz Caballero

LME Chief Executive Martin Abbott attends the 7th World Copper Conference in Santiago April 10, 2008.

Credit: Reuters/Victor Ruiz Caballero

LONDON (Reuters) - Martin Abbott quit as chief of the London Metal Exchange (LME) on Thursday, six months after triumphantly steering a sale to Hong Kong owners of the world's biggest marketplace for materials such as copper and zinc.

While admirers and critics credit him for persuading the 137-year old London institution's fractious shareholders to accept the $2.2 billion takeover by Hong Kong Exchanges and Clearing (0388.HK), he leaves boiling controversy over an LME warehouse system that constantly frustrates industrial users.

"He takes with him the knowledge that he achieved 98.6 percent shareholder support for the sale, which is an amazing accolade," brokerage Sucden's Chief Executive Michael Overlander said.

"But he also takes with him the knowledge that there is still a topic that preoccupies a lot of people's time under his leadership."

Abbott's resignation, effective at the end of this year, was announced by both the LME and by HKEx, where he was co-head of global markets, which said he was leaving to pursue other opportunities.

Abbott, 53, who netted more than 7 million pounds ($11 million) from the exchange's sale, said it would be a good time to go after overseeing a smooth transition.

Abbott's appointment as LME chief executive in 2006 surprised many who wondered how experience laboring in a coal mine, then working as a security guard, a journalist in the fashion world and an editor and publisher, qualified him to run a hugely complex futures market vital to global industry.

He oversaw a rise in annual turnover to new records as the exchange benefited from China's explosive industrial growth to become the world's biggest consumer of industrial metals.

The sale to the Hong Kong company further entrenches these relations with China and the price tag was widely seen as a major achievement given that the LME, which deliberately held down fees to serve its member-owners, made net profit of only 7.7 million pounds in 2011.

'WAREHOUSING WILL NEVER GO AWAY'

But under Abbott the warehouses around the world monitored by the exchange and meant to provide easy delivery of physical metal to industrial clients in case of need, often became repositories for metals stored by banks as collateral in financing deals.

Factories desperate to pick up metal acquired through futures trading in the world's "market of last resort" often found themselves stuck in queues that could last months.

HKEx Chief Executive Charles Li said last year that this issue had almost derailed the sale to his company, which runs Hong Kong's stock exchange.

The LME allows warehouse operators, including banks and trade houses, to release only a small fraction, up to 3,000 tonnes, of their inventories each day. This allows shed owners to keep receiving lucrative rents from firms in the queue.

These rules - along with financing deals that tie up stocks for years and concentrate them in warehouses where rent is cheap - caused an artificial tightness in immediate supply of metals and in particular aluminium that pushes up costs.

Abbot, who has sought to juggle the contending interests of different users of the exchange, maintains that low interest rates, which make the financing deals possible, are to blame and that raising minimum load-out rates would not help.

"Warehousing is what it is, warehousing will never go away," Abbott said on Thursday. "It is the crunch point, the flash point between every party to this industry. I do not regard it as a black or white issue, it is a situation."

"He was vociferously against any changes to the warehousing structures. He was publicly quite outspoken about it," said an executive in the metals market.

"But I think Charles Li is under huge pressure from a number of consumer groups to sort out the problem."

Abbott himself denied there was any tension with Li.

Abbott said a search was under way for his successor, and the LME nominations committee would start work immediately. He would look for another executive position, not necessarily in metals.

Metals industry insiders said the choice of his replacement could reveal much about the balance of power between Hong Kong and London.

"I think the successor will give us a clue," a second metals industry executive said.

(Editing by Anthony Barker)