Seizing the Strategic Window in Commodities to Build Hong Kong into a Physical Trading Hub
Seizing the Strategic Window in Commodities to Build Hong Kong into a Physical Trading Hub
The source text is in Chinese. This English version is for reference only. In case of any discrepancy between this English version and the Chinese version, the Chinese version shall prevail.
The national "15th Five-Year Plan" has for the first time explicitly supported Hong Kong in building a commodities trading ecosystem, providing an important strategic direction for the city to consolidate its status as an international financial, shipping, and trading centre. Developing physical commodities trading can not only strengthen Hong Kong's financial centre functions, but also drive the development of the real economy in areas such as shipping and logistics. However, neighbouring regions are also actively positioning themselves, and the competition facing Hong Kong cannot be overlooked.
Earlier, the Monetary Authority of Singapore announced it would provide vault services for global central banks, signalling that Singapore is shifting from being a futures trading centre towards building physical trading infrastructure. This strategic move highlights a deep-seated contradiction: global physical demand for commodities — represented by gold — is accelerating its shift towards Asia, yet the current international pricing system based on futures contracts is misaligned with Asia's true supply and demand. Whether Hong Kong can seize this window hinges on its ability to leverage its unique advantages.
Regional Markets Each Have Their Strengths; Hong Kong Possesses a Unique Foundation
To chart a clear development path for Hong Kong, one must first understand the structural characteristics of the three major commodities trading markets in the region.
Singapore's precious metals trading is dominated by financial derivatives. In 2025, approximately 42% of global micro gold futures trading occurred during Asian hours. Singapore, as a regional core node, demonstrates the liquidity depth of its derivatives market. However, without physical delivery support, the futures market tends to devolve into "paper trading," and its function of reflecting true supply and demand is also constrained.
The Qianhai Mercantile Exchange, as a majority-owned subsidiary of HKEX, specialises in offshore physical soybean trading. In 2024, its soybean transaction volume reached 10.14 million tonnes with a trading value of approximately RMB 60 billion, successfully achieving a closed loop of bonded warehouse receipts and RMB settlement. However, its product range is concentrated on soybeans, making it difficult to support a diversified commodities hub that includes gold and other products.
Shanghai operates on a massive scale in the precious metals space, with the Shanghai Gold Exchange recording spot transaction values of RMB 49.86 trillion in 2025. However, the mainland's capital account is not yet fully open; overseas investors must participate through designated channels, and restrictions on international capital flows remain.
In contrast, Hong Kong's London Metal Exchange (LME)-approved warehouse network is expanding rapidly, and airport precious metals storage capacity has been significantly enhanced. Combined with the world's largest offshore RMB liquidity pool, this provides a unique foundation for developing a physical trading-based commodities market.
Developing a Physical Trading Hub: Three Cards Define Hong Kong's Strategy
With the regional landscape clarified, Hong Kong's development direction becomes clear: rather than competing with other markets for futures trading volume, it should position itself as Asia's efficient and reliable physical commodities trading hub. In fact, Hong Kong holds three trump cards that underpin this positioning.
The first card: proximity to the world's largest physical demand market. The mainland's annual gold consumption accounts for nearly 30% of the global total, and South China is a major hub for jewellery manufacturing and industrial gold use. Hong Kong is seamlessly connected to the mainland — gold, copper, aluminium, and other commodities dispatched from local warehouses can reach Pearl River Delta production bases within hours. This allows international sellers to complete delivery at the point closest to end buyers, helping to shorten supply chains and reduce logistics costs.
The second card: robust inventory and delivery infrastructure. The number of LME-approved local warehouses has grown to 15, with non-ferrous metal storage capacity exceeding 20,000 tonnes; the airport's precious metals storage vault capacity has also expanded from 200 tonnes to 1,000 tonnes. These facilities ensure that Hong Kong possesses sufficient storage capacity to support physical delivery of various types of non-ferrous metals.
The third card: the world's largest offshore RMB market and the advantage of free capital flow. The Shanghai Gold Exchange chose Hong Kong to establish its first overseas delivery vault, launching RMB-denominated gold contracts with Hong Kong as the delivery point. Hong Kong Precious Metals Central Clearing Limited is set to commence trial operations within this year, providing efficient clearing services for commodities trading. These conditions enable commodities trading not only to be denominated and settled in RMB, but also to achieve free cross-border capital flow.
Together, these three advantages form the core competitiveness of Hong Kong's development as a physical commodities trading hub.
Warehousing, Shipping, and Professional Services: Building a Physical Trading Hub
With the strategic positioning established, the next step is concrete action. The government recently announced a concessionary half-rate tax for commodities traders, which is conducive to driving growth in trading flows. However, commodities trading is not a single-link activity but involves the coordination of multiple industries. The most pressing areas are warehousing infrastructure, shipping support, and the development of high value-added professional services.
On the warehousing front, LME warehouses have extremely high floor loading requirements, ranging from 4 to 10 tonnes per square metre — far exceeding the general standard of 2 tonnes — resulting in a scarcity of qualifying warehouse space. The government should therefore conduct a stocktake as soon as possible of industrial land across Hong Kong suitable for conversion, prioritising the hinterland of the Kwai Tsing Container Terminals and the Northern Metropolis for the construction of warehouses meeting high load-bearing standards.
On the shipping front, Hong Kong's port has long been dependent on containers, while the importance of bulk cargo in total maritime volume has been chronically overlooked. In 2025, global dry bulk shipping volume was approximately 7.2 billion tonnes, with mainland imports accounting for over 40% of the global total. Although gold is primarily transported by air, industrial metals such as copper, aluminium, and zinc still rely on bulk carrier shipping. As a next step, the government should study the conversion of some container berths into dedicated multi-purpose commodities berths equipped with automated loading and unloading capabilities.
On professional services, Hong Kong possesses a mature common law system and professional talent, providing the conditions to develop high value-added professional services related to commodities trading, including insurance, arbitration, financing, and dispute resolution. Currently, the SAR Government and the International Organisation for Mediation are studying the feasibility of establishing a dedicated mediator panel for commodities trading disputes. Building on this, the government should simultaneously attract maritime insurance and financing institutions to set up regional headquarters in Hong Kong, creating a high value-added commodities trading ecosystem.
Asia's influence in the global commodities market is continuously growing. Hong Kong possesses the geographic advantage of proximity to the mainland demand market, robust inventory infrastructure, and the advantage of free offshore RMB flow. The key lies in translating strategy into action, advancing simultaneously on all three fronts of warehousing, shipping, and professional services. As these elements progressively fall into place, Hong Kong will be not only an international shipping, trading, and financial centre, but will also become Asia's physical commodities trading hub.
The source text is in Chinese. This English version is for reference only. In case of any discrepancy between this English version and the Chinese version, the Chinese version shall prevail.
The national "15th Five-Year Plan" has for the first time explicitly supported Hong Kong in building a commodities trading ecosystem, providing an important strategic direction for the city to consolidate its status as an international financial, shipping, and trading centre. Developing physical commodities trading can not only strengthen Hong Kong's financial centre functions, but also drive the development of the real economy in areas such as shipping and logistics. However, neighbouring regions are also actively positioning themselves, and the competition facing Hong Kong cannot be overlooked.
Earlier, the Monetary Authority of Singapore announced it would provide vault services for global central banks, signalling that Singapore is shifting from being a futures trading centre towards building physical trading infrastructure. This strategic move highlights a deep-seated contradiction: global physical demand for commodities — represented by gold — is accelerating its shift towards Asia, yet the current international pricing system based on futures contracts is misaligned with Asia's true supply and demand. Whether Hong Kong can seize this window hinges on its ability to leverage its unique advantages.
Regional Markets Each Have Their Strengths; Hong Kong Possesses a Unique Foundation
To chart a clear development path for Hong Kong, one must first understand the structural characteristics of the three major commodities trading markets in the region.
Singapore's precious metals trading is dominated by financial derivatives. In 2025, approximately 42% of global micro gold futures trading occurred during Asian hours. Singapore, as a regional core node, demonstrates the liquidity depth of its derivatives market. However, without physical delivery support, the futures market tends to devolve into "paper trading," and its function of reflecting true supply and demand is also constrained.
The Qianhai Mercantile Exchange, as a majority-owned subsidiary of HKEX, specialises in offshore physical soybean trading. In 2024, its soybean transaction volume reached 10.14 million tonnes with a trading value of approximately RMB 60 billion, successfully achieving a closed loop of bonded warehouse receipts and RMB settlement. However, its product range is concentrated on soybeans, making it difficult to support a diversified commodities hub that includes gold and other products.
Shanghai operates on a massive scale in the precious metals space, with the Shanghai Gold Exchange recording spot transaction values of RMB 49.86 trillion in 2025. However, the mainland's capital account is not yet fully open; overseas investors must participate through designated channels, and restrictions on international capital flows remain.
In contrast, Hong Kong's London Metal Exchange (LME)-approved warehouse network is expanding rapidly, and airport precious metals storage capacity has been significantly enhanced. Combined with the world's largest offshore RMB liquidity pool, this provides a unique foundation for developing a physical trading-based commodities market.
Developing a Physical Trading Hub: Three Cards Define Hong Kong's Strategy
With the regional landscape clarified, Hong Kong's development direction becomes clear: rather than competing with other markets for futures trading volume, it should position itself as Asia's efficient and reliable physical commodities trading hub. In fact, Hong Kong holds three trump cards that underpin this positioning.
The first card: proximity to the world's largest physical demand market. The mainland's annual gold consumption accounts for nearly 30% of the global total, and South China is a major hub for jewellery manufacturing and industrial gold use. Hong Kong is seamlessly connected to the mainland — gold, copper, aluminium, and other commodities dispatched from local warehouses can reach Pearl River Delta production bases within hours. This allows international sellers to complete delivery at the point closest to end buyers, helping to shorten supply chains and reduce logistics costs.
The second card: robust inventory and delivery infrastructure. The number of LME-approved local warehouses has grown to 15, with non-ferrous metal storage capacity exceeding 20,000 tonnes; the airport's precious metals storage vault capacity has also expanded from 200 tonnes to 1,000 tonnes. These facilities ensure that Hong Kong possesses sufficient storage capacity to support physical delivery of various types of non-ferrous metals.
The third card: the world's largest offshore RMB market and the advantage of free capital flow. The Shanghai Gold Exchange chose Hong Kong to establish its first overseas delivery vault, launching RMB-denominated gold contracts with Hong Kong as the delivery point. Hong Kong Precious Metals Central Clearing Limited is set to commence trial operations within this year, providing efficient clearing services for commodities trading. These conditions enable commodities trading not only to be denominated and settled in RMB, but also to achieve free cross-border capital flow.
Together, these three advantages form the core competitiveness of Hong Kong's development as a physical commodities trading hub.
Warehousing, Shipping, and Professional Services: Building a Physical Trading Hub
With the strategic positioning established, the next step is concrete action. The government recently announced a concessionary half-rate tax for commodities traders, which is conducive to driving growth in trading flows. However, commodities trading is not a single-link activity but involves the coordination of multiple industries. The most pressing areas are warehousing infrastructure, shipping support, and the development of high value-added professional services.
On the warehousing front, LME warehouses have extremely high floor loading requirements, ranging from 4 to 10 tonnes per square metre — far exceeding the general standard of 2 tonnes — resulting in a scarcity of qualifying warehouse space. The government should therefore conduct a stocktake as soon as possible of industrial land across Hong Kong suitable for conversion, prioritising the hinterland of the Kwai Tsing Container Terminals and the Northern Metropolis for the construction of warehouses meeting high load-bearing standards.
On the shipping front, Hong Kong's port has long been dependent on containers, while the importance of bulk cargo in total maritime volume has been chronically overlooked. In 2025, global dry bulk shipping volume was approximately 7.2 billion tonnes, with mainland imports accounting for over 40% of the global total. Although gold is primarily transported by air, industrial metals such as copper, aluminium, and zinc still rely on bulk carrier shipping. As a next step, the government should study the conversion of some container berths into dedicated multi-purpose commodities berths equipped with automated loading and unloading capabilities.
On professional services, Hong Kong possesses a mature common law system and professional talent, providing the conditions to develop high value-added professional services related to commodities trading, including insurance, arbitration, financing, and dispute resolution. Currently, the SAR Government and the International Organisation for Mediation are studying the feasibility of establishing a dedicated mediator panel for commodities trading disputes. Building on this, the government should simultaneously attract maritime insurance and financing institutions to set up regional headquarters in Hong Kong, creating a high value-added commodities trading ecosystem.
Asia's influence in the global commodities market is continuously growing. Hong Kong possesses the geographic advantage of proximity to the mainland demand market, robust inventory infrastructure, and the advantage of free offshore RMB flow. The key lies in translating strategy into action, advancing simultaneously on all three fronts of warehousing, shipping, and professional services. As these elements progressively fall into place, Hong Kong will be not only an international shipping, trading, and financial centre, but will also become Asia's physical commodities trading hub.
