LME to join warehouse operators in electronic tracking system

LONDON (Reuters) - The London Metal Exchange (LME) said on Tuesday it will team up with warehouse operators to register warehouses for its new electronic tracking system along China’s silk road route.

Traders and clerks react on the floor of the London Metal Exchange in the City of London February 14, 2012. REUTERS/Luke MacGregor

The exchange, owned by Hong Kong Exchanges and Clearing (HKEx), said it will work with Henry Bath & Son, CMST Development and Mercuria Energy Trading to register warehouses.

A warehousing fraud at China’s Qingdao port in 2014 spurred the development of LMEshield, a scheme to provide electronic receipts as proof of ownership for stored metal, which has the capacity for tens of millions of tonnes of material.

“In collaboration with a broad group of warehouse operators, physical commodity traders and financing banks, the LME has developed LMEshield to offer a secure and robust way to manage warehouse receipts in multiple countries,” it said in a statement.

“The new system aims to reduce the risks around commodity financing to owners of commodities outside the LME network.”

In the first phase of the project, Henry Bath will list one of its warehouses as an LMEshield facility along the 21st Century Maritime Silk Road, which runs from China through Southeast Asia.

“The ability to set up foreign exchange delivery warehouse in China is confronted with regulation constraints, so LMEshield has presented a good alternative in the context of this regulation for Chinese players to participate in the system of LME,” Han Tielin, the Chairman of CMSTD, said.

Metal receipting and support will be provided by Mercuria and China Merchant Securities will support commodities financing in LMEshield locations along the route.

At a later stage, the parties will identify a country along the route for a new LMEshield warehouse.

The exchange had previously said it would extend the tracking system to other commodities.

Reporting by Clara Denina, editing by David Evans