Palm Oil Futures

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Palm oil is the world's largest vegetable oil by production, and the biggest agricultural component in the production of biofuels through its use as a feedstock for biodiesel. The combination of rising production - from Indonesia and Malaysia - and demand has increased the need for a hedging tool and fostered the introduction and growth of futures contracts at the Bursa Malaysia, Dalian Commodity Exchange and Singapore Exchange Limited.

Background

Palm oil has overtaken soya oil as the most widely-grown oil or fat, accounting for 24.9 percent of the harvest in the 2006/07 growing season compared with 14 percent in 1990/91. Rising demand from China - where it is still predominantly used as a cooking oil - and from members of the European Union (where it ranks second to soya oil as a feedstock for biodiesel) - has seen production in Malaysia double over the past four years, while output in Indonesia has climbed seven-fold from to 2002/03 to 2006/07[1].

Indonesia surpassed Malaysia as the largest producer (and exporter) in 2006/07, though the expansion has heightened concerns from environmentalists about deforestation. However, palm oil is viewed as a more efficient feedstock than soya oil: it accounted for 4.6 percent of the oil planting area in 2006/07, but 34 percent of oil production, while soya oil accounted for 40.3 percent and 29.3 percent, respectively.

The rising demand has pushed palm oil prices to record levels, with the spot price on the KLSE climbing from R1,766.44 per tonne in January 2004 to R2,880 in December 2007[2].

The market buoyancy has also spurred consolidation among producers eager to secure additional acreage[3].

Listed Contracts

The Bursa Malaysia was the first to launch a palm oil futures contract in 1990, with a crude kernel palm oil contract following in February 2004 and a US dollar-denominated palm oil future started in January 2008.

The Joint Asian Derivatives Exchange, a joint venture between Singapore Exchange Limited and the Chicago Board of Trade, started their own crude palm oil contract in June 2007[4], though the dissolution of Jade saw it transferred to the Singapore exchange in November 2007. It was the first palm oil contract to be listed during the US trading day.

The Dalian Commodity Exchange started a refined palm oil futures contract on October 29, 2007.

References

  1. Presentation. ISTA Mielke.
  2. Montly statistics. KLSE.
  3. Wilmar in $4.3bn palm-oil merger. Financial Times.
  4. Press release. Jade.

External Links