China not far from everyone’s minds at LME Week China was never far from the conversation on Day 2 of LME Week, which ended in a gala dinner for…

China not far from everyone’s minds at LME Week China was never far from the conversation on Day 2 of LME Week, which ended in a gala dinner for 2,000 people at Grosvenor House Hotel on Park Lane

In the morning, Garry Jones, chief executive of the London Metal Exchange, told the China Nonferrous Metals Industry Association’s forum that he expected to sign an agreement with China during President Xi Jinping’s upcoming visit to the UK

While no details were provided, it will be related to China’s policy to revive the ancient Silk Road. The need to forge stronger links with China became starkly evident just after his speech when the Shanghai Futures Exchange’s executive vice-president Teng Jiawei said it wanted to build a platform to allow foreign investors direct access

The LME is nervously eyeing Shanghai Futures Exchange, which is enjoying strong growth. The exchange, which is dominated by retail investors unlike the LME’s larger industrial customer base, launched a new nickel contract earlier this year. It has already reached 90 per cent of the volume traded on the LME. LME

As the largest consumer of the worlds commodities, China is seeking a greater share in global pricing. It plans to allow foreign investors to trade a new renminbi crude oil contract. Oil has for decades been priced in the US dollar

Still at the China Nonferrous Metals Industry Association meeting, the decline in China’s transportation and construction sectors as well as sluggish investment growth, were billed as the “new normal”. China’s base metals markets were also expected to remain oversupplied next year

China was very much on the minds of delegates at the breakfast reception hosted by CRU, one of the industry’s leading consultants. The big challenge in this stage of the commodity cycle, CRU said, was waiting for a supply-side response from China, where decisions to shut mines do not only depend on economics

“In the past when prices went into the cost curve you knew there would be a positive response. But with China?.?.?.? that’s not clear,” said CRU’s Colin Pratt. “

Glencore’s zinc production cuts were also debated with attendees asking if it marked a real turning point for the metal. For many that all depends on China and whether it responds to Glencore’s move by increasing domestic output of zinc concentrate

Overall, the mood at the CRU reception was cautiously upbeat. With prices 20 to 40 per cent below the long-run marginal cost of production, Mr Pratt said commodities must be close to bottoming out

“We may look back in a couple of months and see that we were shopping in the bargain basement,” he said. “

Back at the LME Dinner, there was heavy Chinese contingent on the main table including the country’s ambassador to the UK. However, the after-dinner speech came from Oscar Landerretche, chairman of Chile’s Codelco, the world’s largest copper producer, who used quotes from The Godfather to reflect on the state of the mining industry

“Pretty goddamn bad,” he said, quoting Peter Clemenza’s response to Michael Corleone’s question about how bad things could be in a war between mafia families. But downturns help clean the bad blood. “

“The customers and practices bred by the boom years have just to be cleansed every five years,” Mr Landerretche said. “

Earlier in the day, Mr Landerretche, an economist and academic, told the Financial Times that Codelco was willing to cut copper production like rivals Glencoreand Freeport-McMoRanbut only if prices go down further

“But if prices go down, if finance is restricted, we have to deal with the short-term consequences of that, and we may have to do some cutting, we may have to do some adjustments. But we are always going to protect the future of Codelco,” he said. “

The Commodities Note is an online commentary on the industry from the Financial Times