INTERVIEW: Singapore to offer palm oil contract

17 October 2006 09:14  [Source: ICIS news]

By Shibu Kuttickal

SINGAPORE (ICIS news) - The newly-started Joint Asian Derivatives Exchange (JADE) will soon start trading a crude palm oil (CPO) futures contract, but a biodiesel trading derivative will take longer to materialise, a senior official said late on Monday.

JADE – a joint venture between Singapore Exchange and the Chicago Board of Trade (CBOT) - could offer a regional-benchmarked, export-oriented and US dollar-denominated CPO futures contract for 25 tonnes by end-2006, its managing director Chong Kim Seng said.

A biodiesel derivative, however, is unlikely to be introduced soon as the underlying physical market wasn’t yet active. "The biodiesel market looks quite interesting now, but it could take some time before a futures market is introduced around it," he explained.

For now, JADE was focussing on palm oil futures.

Noting that Bursa Malaysia also has a 25-tonne CPO futures contract which may lead to competition, Chong said the Bursa trade was essentially within the Malaysian domestic market.

"Trading in Bursa Malaysia reflects only the Malaysian crude palm oil supply and demand," he said.

"On the other hand, we find the crude palm oil is supplied by both Indonesia and Malaysia and over 90% of that palm oil is shipped out of the region to the US, Europe, China, India and Pakistan," he said.

"Herein lies the opportunity for JADE, which may offer a regional-benchmarked, export-oriented and US dollar denominated CPO futures contract," he added.

Chong had high expectations for the contract’s liquidity, saying he could "feel the interest levels" as regional governments were increasingly drawn into biodiesel projects.

"I was in Kuala Lumpur in February and was surprised that those interested included fuel consumers like the power-generation companies," he said.

Global funds have also shown interest. "There were also people in the United States telling us they will trade because they are not able to access the Malaysian market," he said.

Meanwhile, CBOT has a soybean oil market and soybean prices are closely watched by palm oil traders because of the correlation between the two vegetable oil markets.

"Soybean traders understand quite well the palm oil market. At the same time JADE’s palm oil contract will be an instrument for those involved in the palmoil business in Asia – who now stay up to hedge in the US soybean market," he added.

By: Shibu Itty Kuttickal
+65 6780 4359

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