May Debut for Palm Oil Futures in Dollars

CME Group Inc, the world’s largest futures exchange, will introduce a dollar-denominated palm oil futures contract this year to try and take advantage of rising global demand for the edible oil.

The product is scheduled to begin trading on May 24 in Kuala Lumpur, the Malaysian capital, with final settlement prices based on Bursa Malaysia Bhd’s ringgit-based futures, according to a statement from CME distributed by PRNewswire.

Palm oil, about 90 per cent of which is grown in Malaysia and Indonesia, is the world’s most traded vegetable oil, used in foods and cooking. The tie-up between CME Group and Bursa Malaysia, which also manages the nation’s stock exchange, includes a shareholding and was announced last September.

“The volumes are likely to be slow this year, but it will catch up with Bursa Malaysia’s benchmark,” said Dorab Mistry, a director at Godrej International Ltd, one of India’s largest traders of vegetable oil. “It is bound to work.”

Ringgit-denominated palm oil futures, used as the benchmark across Asia, surged 57 per cent last year on the Malaysia Derivatives Exchange as the global economy emerged from recession. The contract, which traded today at 2,685 ringgit ($803) a ton, may gain to 3,200 ringgit this year, Mistry said.

The two companies’ agreement will also lead to the listing of all existing and future Bursa Malaysia derivatives products on CME Globex, CME’s electronic trading platform. The transfer is expected to take place later this year, Bursa Malaysia’s Chief Executive Officer Yusli Yusoff told reporters.

International Profile

“This will help to raise the international profile of palm oil,” Yusli said at a conference in Kuala Lumpur, referring to the dollar-priced futures. Bursa Malaysia traded 4 million contracts in 2009, up 33 per cent from the year before. Similar growth is projected for this year, Yusli said.

Bursa Malaysia earned 76 million ringgit from the sale of a 25 per cent stake in its Bursa Malaysia Derivatives unit to CME, it said on Feb. 4.

“Food processors, commercial firms and other multinational companies who use crude palm oil and trade in U.S. currency now have an alternative for hedging that risk,” Timothy Andriesen, CME’s managing director for commodities, said in a statement. — Bloomberg

Source :
Business Times

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