New Palm Oil Futures Contracts Off To Slow Start; Volume Thin

Article written by Lim Shie Lynn, sourced from

KUALA LUMPUR (Dow Jones)–The CME Group Inc.'s (CME) newly-introduced dollar-denominated crude palm oil futures contract has got off to a slow start with only 12 lots trading overnight in its first session Monday, according to data from the exchange.

The September contract – the only contract to trade during the Globex session – closed US$5.50 higher at US$752 a ton. At 0423 GMT, the contract was trading US$11.75 lower at US$740.25 per ton with only five lots traded so far. One lot is equivalent to 25 tons.

Despite lukewarm interest on debut, market participants said interest in the contract could grow as agribusiness traders and palm oil refiners start using the contract to hedge and eventually, speculators coming in and adding volume.

"Concerns about the euro-zone debt issues are keeping investors on the sidelines. Otherwise, the palm oil contract on CME would've done better on debut," said S. Paramalingam, executive director at Kuala Lumpur-based brokerage Pelindung Bestari Sdn Bhd.

"It will take a while for volume to grow but there is interest in the contract. It is only a matter of time," an agricultural broker based in Chicago said via email late Monday.

Increased palm oil usage in the US is also expected to generate interest in the dollar-denominated contract. The US palm oil imports have risen since the beginning of the year, partly due to a ban on the sale of trans fats in several states as well as California's ban on the use of trans fats in restaurants.

Palm oil is a healthier substitute and does not require hydrogenation due to its semi-solid form, said a company executive at a Malaysia-listed plantation company which ships palm oil to the US.

Palm oil shipments to the US rose to 306,181 tons in the January-April period, up 7.3% on year, data from the Malaysian Palm Oil Council showed. America consumed 859,000 tons of palm oil last year.

"We are pleased there was trading on the first day and know that we have work to do as part of our continuing education efforts on the risk management attributes of the product," Tim Andriesen, managing director for agricultural commodities at CME Group said via email today.

Another newly launched contract, the benchmark August crude palm oil (CPO) contract on the Indonesia Commodity and Derivatives Exchange (ICDX) also got off to a slow start on its debut Friday, with only 216 lots traded, so far. The August contract was last trading 0.1% lower at IDR6,840 a kg, with 31 lots traded.

Both CME and ICDX palm oil contracts face hurdles as the two are vying for a share of the market which has so far been dominated by the ringgit-denominated CPO futures contract on the Malaysia Derivatives Exchange.

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