Archive for August, 2009

CME to take stake in Bursa derivatives ops

August 12, 2009 Leave a comment

This following article in green is written by my colleague Adeline Paul Raj. About 18 months ago, on 1st March 2008, I wrote about the possibility of this tie-up. I’ll paste that article below in blue 😉

CME Group Inc, the world’s largest derivatives exchange, will take a minority stake in Bursa Malaysia Bhd’s derivatives business, officials said.

Discussions are ongoing and should be finalised in a matter of weeks, Bursa’s chief executive officer (CEO) Datuk Yusli Mohamed Yusoff said. “It’s a minority stake. We’re still finalising the negotiations,” he told reporters on the sidelines of the World Capital Markets Symposium in Kuala Lumpur yesterday.

In return, Bursa will also take a small stake in the Chicago-based CME, the latter’s CEO Craig Donahue told Business Times on the sidelines of the same conference.

The two companies announced in a press statement yesterday that they were working on a collaboration involving trade matching services, product licensing and minor cross-equity investments. The deal needs regulatory approval, they said.

Yusli said the partnership is aimed at globalising the Malaysian crude palm oil (CPO) futures market. “Through this collaboration, we expect the resulting expertise and knowledge transfer to further facilitate our goal for a robust derivatives exchange,” he said.

CME will use Bursa’s ringgit-denominated crude palm oil futures contract (FCPO) settlement prices, which will enable CME to develop a US dollar-denominated cash-settled CPO futures contract and its related options for listing on one of CME’s US registered exchanges.

The product is expected to be traded on CME’s electronic trading platform, CME Globex. This means that CME’s customers from other markets would be able to access Bursa’s derivatives markets and products on CME Globex, which is the most widely distributed electronic trading platform in the world.

“This proposed partnership will allow us to continue to expand our transaction processing business opportunities, increase our presence in Asia as well as help our Malaysian partners grow their business,” Donahue said in the statement.

Bursa’s shares, which were suspended from trading for an hour in the morning pending the announcement, ended the day 2 sen lower at RM8.29.

Futures tie-up with Chicago?
MALAYSIA’S popular crude palm oil futures (FCPO) and the soon-to-be-launched US dollar palm oil futures (FUPO) may also be traded on the Chicago Mercantile Exchange in the medium term, a source said.

“Bursa is launching the direct market access very, very soon. Following that, FUPO’s accessibility to foreign traders will be higher when it is launched in less than six months,” the source said.

If Bursa Malaysia’s palm oil futures are traded in Chicago, it will boost palm oil’s popularity as a reliable and flexible hedging tool.

Malaysia is already the world’s biggest palm oil exporter. Kuala Lumpur is also the world’s biggest futures market for the commodity.

Earlier this week, the Chicago Mercantile Exchange co-hosted an event at the Palm & Lauric Oils Conference 2008 held in Kuala Lumpur. The majority of the participants were oil palm growers, oleochemical producers, food manufacturers, vegetable oil traders, biodiesel producers, commodity fund managers, financiers, futures brokers and dealers.

CME Group president Phupinder S. Gill, in his welcome speech to more than 1,900 delegates said, “We look forward to collaborating with Bursa Malaysia to generate trading opportunities”. Also present was Bursa Malaysia chief operating officer Omar Merican.

When approached, both Phupinder and Omar declined to elaborate on the proposed collaboration.

CME Group, which clocks in daily trading volume of around nine million contracts, consists of the Chicago Mercantile Exchange and Chicago Board of Trade (CBOT). It is the world’s largest derivatives exchange for grains, livestock, oilseeds, dairy and timber.

Another source said that the tie-up will not lead to another JADE, a new exchange that was meant to be equally-owned by Singapore Exchange Limited (SGX) and the CBOT. “It is more of having some of the derivatives traded on CME Globex electronic trading platform. It could be FCPO, FUPO and FKLI.”

The partnership for the Joint Asian Derivatives Exchange (JADE) was dissolved in November 2007 when SGX paid S$1.14 million for the remaining stake in JADE, following CME’s acquisition of the CBOT. JADE’s contracts – rubber and palm oil futures – were transferred to the SGX derivatives platform.

When JADE was launched in September 2006, it used the Chicago exchange’s electronic platform and clearing was done by the SGX. It listed its first product, a rubber futures, in September 2006. Later in June 2007, it launched the US dollar denominated crude palm oilfutures. The physically-settled contract was created to compete with the global benchmark FCPO contract listed on Bursa Malaysia.

Palm oil not that visible on grocer shelves

August 7, 2009 3 comments

I’m now on vacation in Los Angeles, California.

This morning, I sauntered into a local chain grocer called Trader Joe’s, famed for catering to shoppers who care deeply for certified organic food.

California is the first state in the US to ban trans fat from its food and palm oil would deem ideal to fulfill this health requirement.

While a handful of food manufacturer have started to recognise the versatility and nutritional benefits of palm oil, outright retail of palm cooking oil on supermarket shelves is almost non-existent. As I walked past the aisle displaying shelves of cooking oil, my eyes scanned through all the lables.

There were plenty of extra virgin olive oil, canola, grapeseed and sunflower. But, there was no soybean or palm oil.

Soybean and palm oil are not freely available as cooking oil in the US because they are very much incorporated in processed food like cookies, cakes, pastry, chewing gum, chocolate, and many more.

If you have a a frank talk with scientists in snack food companies, they’ll tell you that palm oil is one of the rare ‘cheap and good products’ that is still available today.

CBIP mulls power supply to rural areas via mills

August 3, 2009 1 comment

CB Industrial Product Holding Bhd (CBIP), known for its automated Modipalm mills and organic fertiliser plants, is looking to build renewable energy plants to power up rural villages surrounding oil palm estates.

With almost 30 years of experience in building palm oil mills, CBIP has evolved to be a niche mechanical engineer that offers green technology at affordable rates in the oil palm industry.

“Palm oil mills are more or less self-sufficient now. From being a consumer, mills can use biomass and biogas to generate electricity and contribute to the national grid,” managing director Lim Chai Beng told Business Times in an interview in Shah Alam, Selangor.

Lim said the next step in the right direction is to find ways to generate electricity more efficiently and lower the cost of hooking up to the national grid so that rural villages within 5km from the mill can enjoy continuous power supply.

Asked how soon this renewable energy plant initiative can materialise, Lim said much will depend on incentives to be offered by the government to oil palm estate owners. “Right now, the return on investment is not worthwhile. There has to be some incentives from the government.”

On CBIP’s core business, Lim said oil palm planters have everything to gain to upgrade their conventional mill to an automated Modipalm. “A Modipalm is compact. It takes up less space, fuel and labour; produces more and better quality oil; and is kinder to the environment,” he said.

At a Modipalm mill, there is no need for tractors and hydraulic skid-steer loaders or wire-rope winches to move the fruit-cages around. There is also no need for monorail hoists to lift the cages to the threshing machine. This means less machinery to maintain and, in two shifts, the Modipalm mill only need 25 workers or half the staff strength to operate a conventional 40-tonne mill processing 200,000 tonnes of fresh fruit bunches in a year.

Also, since mill owners need not invest in that many tractors, there is savings on diesel and tyres. In the Modipalm continuous sterilisation process, fruit bunches are split using a double-roller bunch splitter for effective air-removal and steam penetration. Low pressure steam is used throughout the whole process.

Since Modipalm does not have any high-pressure cookers, it is not subjected to annual shutdown for inspection and certification by the Department of Occupational Safety and Health, thus, reducing maintenance cost and downtime in the mill.

Lim estimates that the annual savings a planter stands to enjoy from a Modipalm mill are some RM700,000.”Less workers also means less houses to be built on the plantation. So, you see, it is worthwhile to invest in a Modipalm mill,” he said.

On better quality oil, Lim explained that since there is less oxygen in the low-pressure sterilisation chamber, the oil in the fruits is subject to less oxidation. “Refiners welcome this kind of oil quality as it is more cost- effective to process into cooking oil and oleochemicals,” he said.

The oxidative status of crude palm oil is measured by its deterioration of bleachability index (dobi), and the minimum level must be above 2.3. Lim said that the dobi value of the crude palm oil extracted from a Modipalm mill is above 3.

With a 15-year patent registered in Malaysia and Indonesia, CBIP enjoys exclusive rights to supply Modipalm mills until 2019. Its major clients include Felda, Sime Darby Bhd, Sarawak Oil Palms Bhd, Tradewinds Plantation Bhd, TH Plantation Bhd and United Plantations Bhd. In Indonesia, CBIP counts Sinar Mas Group, Wilmar International Ltd and Astra Agro Lestari Group as its clients. CBIP has also built Modipalm mills for Cargill Asia Pacific and Ramu Sugar Plantation in Papua New Guinea.

CBIP uses flat steel and U-shaped beams to build Modipalm mills. It buys these raw materials from local manufacturer Megasteel Sdn Bhd. High pressured parts made from higher quality steel are imported from Japan and Europe. Asked if the change in government policy from August 1 2009 that requires Certificate of Approval on imported steel will have an adverse effect on CBIP business, Lim said: “For now, we see marginal impact as we source the bulk of our flat steel and U-shaped beams locally.”

“We’re actually more concerned about the strength of the US dollar and palm oil prices in the commodities market,” he added.