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Indonesia starts crude palm oil futures

JAKARTA, May 21 (Reuters) – The Indonesia Commodity & Derivative Exchange (ICDX) launched its crude palm oil futures on Friday, but analysts said its rupiah denomination may limit trading interest to local players.

The contract was Indonesia’s second attempt at creating a local price benchmark to rival Malaysia’s crude palm oil futures. “It is not easy to launch a futures contract because we have to convince people to trade here,” said Deddy Saleh, the head of the commodity futures exchange supervisory body.

“But we expect the contract will be liquid.” ICDX’s August CPO futures contract closed at 6,840 rupiah (US$0.740) per kg on Friday, compared to 7,020 rupiah per kg when it opened. Market volume was 115 lots of 10 tonnes each.

Megain Widjaja, ICDX’s managing director, said the exchange expected trading volume to gradually grow to about 1,000 lots by the end of June.

It is not easy for an exchange like this but if all market players participate, it will make the exchange more liquid,” Widjaja said. “I’m optimistic the volume will grow to a minimum of 1,000 lots or 10 percent of Bursa Malaysia’s volume by the end of next month,” he said.

Analysts have said the exchange may struggle to increase liquidity where there is a much smaller investor base and a lack of regular palm oil industry data to trade.

ICDX said it planned to address the problem by sourcing data from third parties.

While players prefer to wait and see whether the exchange can build up liquidity, analysts said the Indonesian exchange would attract mainly local players rather than foreign investors.

“It may attract Malaysians who have Indonesian business and buy CPO from Indonesia as they can actually take tenders in Belawan or Dumai port,” a trader in Kuala Lumpur said. “But again since the contract is in rupiah it may deter foreign players who don’t have business in buying Indonesia CPO.”

Another analyst based in Singapore added investors may look at the ICDX exchange to get information on local prices as well as Indonesian monthly export taxes.

Indonesia is the world’s top palm oil producer with production expected to reach nearly 23 million tonnes this year. — Reporting by Niluksi Koswanage and Karima Anjani. Editing by Sara Webb

The following news article is written by Lim Shie-Lynn and sourced from http://www.palmoilhq.com/

New Palm Oil Contracts Face Tough Times Amid Euro Zone Fears
KUALA LUMPUR (Dow Jones)–New palm oil futures contracts launching on the Indonesian Commodity and Derivatives Exchange (ICDX) and CME Group Inc.’s (CME) Globex platform may struggle to steer interest away from the benchmark contract in Malaysia, traders and analysts said.

Should the new instruments attract only tepid responses, the perception will be reinforced that Malaysia’s derivatives exchange is the only viable place to trade palm oil futures, after a recent Singapore-based futures venture failed to catch the eye of investors.

One reason it may be difficult to attract liquidity is because investors, such as plantation companies and fund managers, will be hesitant to jump into the market, amid growing concerns that the euro-zone debt crisis could curb global economic recovery and crimp interest in the contracts.

“In the longer term, the dollar contract may have better prospects over the Indonesian palm contract in terms of reliability and transparency,” a senior trading executive at a Kuala Lumpur-based commodities brokerage said. “But for now, both contracts may face difficulties attracting interest as markets weaken.”

Many trade participants expect the ringgit to continue strengthening, giving CME’s futures an edge over the rupiah-denominated contract that debuts on the ICDX Friday. The CME contract, which launches Monday, is tied to Bursa Malaysia Derivatives’ ringgit-based benchmark palm oil contract.

“Some palm refiners see CME’s dollar-denominated contract as a good hedge which may reduce currency risk,” a trading executive at a Malaysia-based plantation company said.

Refining margins have fallen into negative territory as the ringgit surged 7% against the dollar this year–making it Asia’s best performing currency–after Malaysia’s central bank raised interest rates.

The CME contract “is a useful tool when (investors) believe currency changes will have an impact on palm oil prices, as this provides them greater flexibility in managing both the commodity and currency risks,” Tim Andriesen, Chicago-based managing director of agricultural commodities, products and services at CME, said.

A second CME official said that close links between palm oil and soyoil may boost liquidity for the new contract.

Historically, palm oil has traded at a discount to soyoil, but the gap has narrowed from $100 a metric ton since last year and palm oil is now trading at a slight premium as output in Malaysia remains weak while the South American soybean crop hits record levels.

“We have seen strong interest in our CPO contract and are hopeful that this interest is indicative of market participation,” Andriesen said. “We will work with our customers on educational efforts to promote this product.”

The new contracts aren’t the first time a challenger to the BMD’s mantle has emerged.

The Singapore-based Joint Asian Derivatives Exchange launched dollar-denominated palm oil futures in 2007, but failed to generate much interest among investors.

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