China’s palm oil futures pose no threat for now, say traders


TRADERS believe the recent move by China’s Dalian Commodity Exchange (DCE) 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 Bhd (BMD) in the short term.

Effective Dec 22, China allows 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) will 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 DCE to allow foreign participation in the palm olein contract will allow competition. However, the Malaysian palm oil prices reflect raw material prices, while DCE’s reflect final product prices,” he told Bernama yesterday.

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

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

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

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

Meanwhile, Interband Group of Cos senior palm oil trader Jim Teh projected that the DCE will take about five years to reach the global benchmark level although it is seen to have a mild competition or effect on BMD.

“Most international traders will be cautious to trade in China’s futures. They will probably have more domestic players coming in at the moment as international traders may be sceptical,” he said.

Nevertheless, he said China’s move will also be an awakening for BMD to be more creative in coming up with more ideas and incentives, so that industry players will 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 FCPO contract on BMD for March 2021 was traded at RM3,569 per tonne last Thursday. — Bernama