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Indonesia throws down the gauntlet

BURSA Malaysia Bhd deserves a pat on the back for achieving record trading volume in palm oil futures but its Indonesian rival could be a dark horse in the making.

Indonesia has just passed a law that turns the Indonesian Commodity and Derivative Exchange (ICDX) into a super-clearing house and last week it tied up with CME Group Inc, the world’s largest futures exchange. Under the tie-up, investors in Indonesia can trade CME’s products – ranging from petroleum and corn to soya oil.

“Many Indonesian companies are keen to trade other futures on other exchanges. This collaboration will give more choices to our clients,” ICDX chief executive officer Megain Widjaja told Business Times in an interview in Kuala Lumpur yesterday. “It takes time to launch and build volumes in new contracts. So, this is another way for our clients to have exposure in products not listed on ICDX,” he added.

Last year, ICDX launched its rupiah-based palm oil futures to create a local price benchmark and rival Malaysia’s palm oil futures contract. As of December 31 2010, there had been 193,563 lots of 10 tonnes each transacted or around 2,000 lots per day.

Currently, the ICDX palm oil contract has 22 companies participating, at varying degrees of activity. Among stalwart supporters are Wilmar International, Sinar Mas Agro Resources Tbk, Asian Agri, Musim Mas and Duta Palma.

But still, the Indonesian palm oil industry uses Malaysian palm oil futures and the Europe spot price in Rotterdam as benchmarks.

Also, traders say Indonesia has yet to have a strong industry regulator that releases reliable data on monthly production, exports and stocks. This makes it hard to build up liquidity – one of the main reasons why a previous Indonesian palm oil contract attempt failed. To this, Widjaja said,” The government is aware of this and they are giving their best effort to meet the market’s needs.”

ICDX chief operating officer Laren Tan Kian Seng admitted that while the POC series is more international with wider participation from big names like Cargill, Wilmar, Sime Darby, and IOI Group, Indonesia could prove to be another attractive trading hub.

“Since Indonesia overtook Malaysia in palm oil output in 2007, the global trading community is starting to pay attention to the trading scene in Jakarta,” he added.

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