Staff of Bank of China work at the trading desk in London. Diao Ying / China Daily

The London Metal Exchange approved the international arm of Bank of China Ltd in April as its first Chinese member in its 135-year history, immediately making China the largest consumer of metals traded at the exchange.

BOCI Global Commodities (UK) Ltd, the international arm of China's third-largest lender, was approved for category 2 associate broker clearing membership.

The move came as Chinese banks turn their attention to the lucrative commodity trading business generated by the country's vast demand for raw materials.

Xu Jinlei, managing director of the London subsidiary of Industrial and Commercial Bank of China Ltd (ICBC), China's largest bank, says despite China becoming the world's major commodity buyer, trading has so far been dominated by foreign investment banks "due to the limited capabilities" of Chinese banks.

He explains that Chinese banks have been offering basic services to commodity customers in China, including trade finance and letters of credit, but they have not established capacity such as risk hedging in commodity trading, a more profitable part of the banking business.

"In the long term, Chinese banks need to establish capabilities in the area, such as the technologies for risk management and talent recruitment, and the move by Bank of China to become a member of LME can be seen as part of that effort," Xu added. "It is an area with huge potential. The volume is simply huge."

Following Bank of China, ICBC is also considering getting involved in commodity trading in London, according to Xu. The bank moved to a new building earlier this month in London, and it has already reserved space for it.

Established in 1877, LME is the world's largest market for trading in non-ferrous metals, with an equivalent of 3.5 billion tons of materials traded last year. LME contracts are seen as the global benchmarks for the price of aluminum, copper, zinc and tin.

LME membership has seven categories. There are 12 members under category 1, according to which traders sit at fixed points around a circle and trade in specific five-minute periods.

Under category 2, known as associate broker clearing, members do not have access to the ring trading, but they can access the market by phone or electronically.

Other members alongside BOCI Global Commodities (UK) Ltd in category 2 include HSBC Bank Plc, Goldman Sachs International, and Standard Chartered Bank Plc.