China's palm oil futures no threat for now

KUALA LUMPUR: Traders believe a recent move by China’s Dalian Commodity Exchange to open its palm oil futures contract to international investors should provide a certain degree of competition but it will not impact Bursa Malaysia Derivatives (BMD) in the short term.

Effective Dec 22, China allowed foreign investors to have access to its palm oil futures contract trading in an effort to become a global commodity pricing power.

Palm oil trader David Ng said prices on the BMD contract crude palm oil futures (FCPO) would remain relevant to different market participants as it has established a global price benchmark, catering to producers and plantation companies as an avenue to hedge price risk.

"The recent move by the Dalian Commodity Exchange to allow foreign participation in the palm olein contract will allow competition. However, Malaysia palm oil prices reflect raw material prices while Dalian reflects final product prices,” he told Bernama today.

He opined that BMD prices tie closely to the underlying fundamentals in the industry as both prices serve different interests that cater to different participants.

"The move may be seen as a complementary move instead of a price competition between both markets,” he said.

Ng was commenting on a recent Reuters report on China's uphill bid to establish a global benchmark for palm oil futures, especially with having Malaysia as the most influential producer in the industry.

Traders said the contract would not affect prices on the BMD at the moment as it would take China a few years before reaching a global benchmark level.

Meanwhile, Interband Group of Companies senior palm oil trader Jim Teh projected that the Dalian Commodity Exchange would take about five years to reach the global benchmark level although it was seen to have a mild competition or effect on BMD.

"Most international traders will be cautious to trade in China's futures. Probably, they will have more domestic players coming in at the moment as international traders might be sceptical,” he said.

Nevertheless, he said the move by China would also be an awakening for BMD to be more creative in coming up with more ideas and incentives so that industry players would continue to trade in the local derivatives market.

"As long as BMD keeps improving to maintain their international traders and bringing in new players, we should be doing good in the long run,” he said.

The third-month benchmark for crude palm oil (CPO) futures contract on BMD for March 2021 was traded at RM3,569 per tonne on Thursday. - Bernama
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