Trading in crude palm oil (CPO) futures has helped put Malaysia on the map. After all, Bursa Malaysia Derivatives Bhd, a subsidiary of Bursa Malaysia, operates the most liquid and successful CPO futures in the world.

But with the proposed merger between the Singapore Exchange (SGX) and the Australian Securities Exchange (ASX), which would bring together the world’s widest range of Asia-Pacific commodity derivatives, some are of the view that the spotlight on derivatives trading will shift. Australia is rich in resources and a SGX-ASX merger would boast a combined US$484.8 billion worth of mining, chemical and energy companies.

Will this threaten the entrenched position of Bursa’s  CPO futures contract in the derivatives market?

Bursa’s CEO Datuk Yusli Mohamed Yusoff does not think so.

“If Australia or Singapore produces palm oil, maybe. But I don’t see that happening. We have a head start over the others in certain things and we must capitalise on that. When we tied up with CME [Group], it was for that very purpose — ensuring that we can defend our position,” he says.
CME Group is the world’s leading and most diverse derivatives marketplace.

“We do not want CME to be on the other side of the table. We now have CME on our side of the table. The tie-up was partly defensive and partly offensive because we want to grow it more. There is no reason why the volume of palm oil shouldn’t be similar to or higher than that of soyabean one day. That is our ultimate aim and CME’s — to grow that business,” Yusli says.

He adds that it will take time for the trading volume of CPO futures to grow.

“It’s only a matter of time before trading in palm oil begins [to pick up] because palm oil is an edible oil with the highest demand in the world now. More palm oil is produced now than soyabean. Yet there is more trading in soyabean. Over time, that equation has to change … this is something that will correct itself over time and we are confident it will happen.”

Aside from Malaysia, palm oil futures are traded on the Dalian Commodity Exchange, but that is just for domestic trade.

Another large palm oil producer — Indonesia — launched a rupiah-based palm oil futures contract in May this year.

This article appeared in Cover Story  page, The Edge Malaysia, Issue 830, Nov 1-7, 2010