August 12, 2015 / 5:07 AM / 2 years ago

LME Q2 profit doubles as trading fee hike pays out

MELBOURNE, Aug 12 (Reuters) - The London Metal Exchange (LME), the world’s biggest base metals bourse, roughly doubled its core profit in the second quarter despite a slight fall in volumes, as a January hike in trading fees flowed through to the bottom line.

The result reflects efforts by LME parent Hong Kong Exchanges and Clearing Ltd (HKEx) to boost returns from its metals business since it bought the 138-year-old exchange for $2.2 billion in 2012.

HKEx reported its earnings on Wednesday, more than doubling its second quarter net profit to $325 million.

Earnings before interest, tax, deprecation and amortisation (EBITDA) from its commodities division - almost exclusively its LME business - came in at HK$310 million ($40.0 million) in April-June from HK$156 million a year earlier, according to Reuters calculations.

The strong growth reflects the commercialisation of the LME’s trading fees from January 2015 that caused an outcry from its members, forcing it to trim the size of initially planned fee increase.

Revenue from trading fees and tariffs in its commodities division rose by HK$253 million or 54 per cent for the first half compared to the first half of 2014, the HKEx results showed.

The exchange has no plans to hike trading fees in 2016 by as much as it did this year when it sought to bring fees into line with other global exchanges, an executive told Reuters in May.

Before the LME’s sale in December 2012, it was owned by the banks and brokers that used it and trading fees were kept very low for members.

Operating expenses in the commodities division fell by $74 million for the first half, due mostly to a reduction in legal fees for litigation in the wake of a string of class actions in 2013 over long delivery backlogs in its warehouses.

Average daily traded volumes slipped by 3 percent due to weaker industrial metals demand, with traded aluminium volumes down 9 percent and zinc volumes falling 4 percent for the half against a year earlier.

Lead volumes were flat, copper volumes rose 4 pct and nickel trade was up by 2 percent.

The results for HKEx’s commodity division also include its London Mini Futures, which are five tonne monthly contracts traded in renminbi on the Hong Kong bourse.

$1 = 7.7554 Hong Kong dollars Reporting by Melanie Burton; Editing by Richard Pullin

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