21/9/06 (The Star)  -  BEIJING: Bursa Malaysia is considering launching a dollar-denominated palm oil futures contract as early as next year to head off potential competition from a rival backed by the Chicago Board of Trade (CBOT), a senior exchange official said yesterday.

The exchange will act to protect its leading position in crude palm oil futures, which is increasingly attracting attention from hedge funds as well as producers in neighbouring Indonesia.

A joint venture between CBOT and the Singapore Exchange, called the Joint Asian Derivatives Exchange plans to offer palm oil futures around the end of the year. Its first futures contract, rubber, launches on Sept 25.

The new contracts, if sufficiently popular, could draw liquidity away from Asia's current rubber contracts in Tokyo and Singapore, and from the palm oil contract in Malaysia.

“There's nothing much you can do about competition except fight back,” Raghbir Singh Bhart, head of global markets for Bursa, told Reuters in an interview.

“We are actively looking at whether Bursa should offer a US-dollar denominated contract. The central bank has been very supportive, saying, 'yup, you guys can go ahead'. So now the ball is basically at our feet, as to when we are going to introduce it.”

The contract could be introduced next year, he said. The exchange's current palm oil contract is dominated in ringgit.

Previous experiments with dollar-denominated tin and palm olein futures failed to take off. That had been at exchanges that preceded Bursa Malaysia, a merger between the KLSE and the country's commodity exchanges.

The exchange is also considering adding delivery points in Indonesia, which would also facilitate trading by the growing number of Indonesians trading the Malaysian contract. Their increased interest in part stemmed from greater ties with Malaysian plantations, which insisted their Indonesian counterparts hedged exposure, Bhart said. “They are obviously looking at Indonesians, so one way to head them off at the pass is to have Indonesian delivery points.”

After years in the doldrums, palm oil futures are now generating increasing interest as Governments pursue plans to use palm oil for fuel. Bursa was also studying biodiesel futures, but unlikely to launch them in the immediate future, since most biodiesel plants were still seeking approvals or under construction, Bhart said.

“Its certainly on our radar screen.” – Reuters