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CPO shines in record year

KUALA LUMPUR: Bursa Malaysia’s derivative trades hit all time high in 2014 with total volume averaged 50,654 contracts per day, an increase of 17 per cent from 2013 volume of 43,315 contracts. 

When contacted by Business Times yesterday, Bursa Malaysia Derivatives Bhd chief executive officer Chong Kim Seng noted the market’s star performer crude palm oil futures (FCPO) surged beyond 10 million contracts, up 28 per cent from 2013.

He said vegetable oil traders worldwide continue to look to Bursa Malaysia as the global price benchmark reference for palm oil prices. 

“In the last six years, the palm oil trading volume on the futures market had more than doubled. Back in 2009, it was only four million contracts. 

“2014 is an exceptional year for FCPO. We surpassed the 10 million contract mark. That also translated to an all-time high average daily volume of 41,285 contracts, 28 per cent more than 2013’s volume of 32,251 contracts,” he added.

Malaysia produces some 20 million tonnes of palm oil a year, of which about 19 million tonnes are shipped out of the country in the form of cooking oil, margarine, oleochemicals, animal feed and biofuel.

Bursa Malaysia’s palm oil futures market value adds to this as Chong noted that this year the exchange is expected to repeat or better 2014’s performance of settling more than 10 million contracts of FCPO.

Each FCPO contract is 25 tonnes. So, at more than 10 million contracts, that worked out to 253 million tonnes of palm oil settling at the futures market.

“If Malaysia only has the physical market, we would only be trading around 20 million tonnes of palm oil. But with Bursa Malaysia’s palm oil futures market settling contracts amounting to 253 million tonnes, we have traded up more than 12 times that of the physical market,” he added.

Chong noted the increased volatility in the crude oil and oilseed markets globally had and will continue to catalyse the volume surge in FCPO.

Indeed, the palm oil industry has seen much volatility last year. From a high of RM2,800 per tonne in March 2014, palm oil prices tumbled to a low of around RM1,950 per tonne, five months later.

Since September 2014, prices have somewhat stabilised and had started to climb. Yesterday, the third month benchmark palm oil futures on Bursa Malaysia closed RM20 higher at RM2,284 per tonne. 

As futures prices climbed, palm oil prices in the physical market rose too. In explaining the tight correlation between the two markets, Chong said “there’s continuous interplay of price movements between the two markets.” 

“Because of this, the futures market allows for price risk encountered in the physical market to be transferred to other parties more willing to assume the price risks,” he said.

Chong urges more businesses in this region, that are exposed to the volatility of palm oil prices, to hedge their position with Bursa Malaysia. “Risks cannot be eliminated but traders can manage it by leveraging on our options and futures,” he said.

In taking the cue from price rises in the futures market, plantation counters on the equity market like IOI Corp Bhd, Sime Darby Bhd, Kuala Lumpur Kepong Bhd, Genting Plantations Bhd and Sarawak Oil Palms Bhd had seen their share prices, in the last couple of weeks, appreciate by beween 5 and 10 per cent.

When asked to comment on palm oil price uptrend in the futures market, MIDF Research analyst Nadia Kamil said the ongoing floods that may have inundated some oil palm estates in the east coast of Peninsular Malaysia is a blessing in disguise. 

“The expectation of lower palm oil output resulting from flood has helped push prices higher. Going forward, prices in 2015 could consolidate at a higher price range of between RM2,400 and RM2,800 per tonne,” she said.

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