BMD on defensive mode
08/03/2023 (The Star Online), Kuala Lumpur - Malaysia’s regulatory officials and its global partners in the East and West sought to highlight and reinforce Bursa Malaysia Derivatives’ (BMD) price-setting and discovery role for crude palm oil (CPO) prices.
This guarded defensive tone by the country’s top officials and its partners was heard during the annual Palm and Lauric Oils Conference and Exhibition (POC 2023) as the world’s largest crude palm oil producer Indonesia signals its intent to soon establish its own benchmark pricing for the commodity.
The BMD underscored its key role as being the global hub for CPO price discovery, and BMD’s global partners, which are major financial derivatives exchange operators from the United States and China – the CME Group and the Dalian Commodity Exchange respectively – had reaffirmed their commitment with BMD.
The two global derivatives exchange operators had specifically acknowledged Malaysia’s role in this area and their intention to continue collaborating with the country on this front.
The government, through the Plantations and Commodities Ministry, had at the event also sought to highlight Malaysia’s global price benchmark role for CPO and highlighted key sustainability initiatives in these areas as well.
Indonesia’s plan to have its own CPO price benchmark appears to have been simmering for some time, and flared up in January when the republic officially announced plans to move ahead with its pricing plans.
Indonesia’s Trade Minister Zulkifli Hassan said the issue of referring to Malaysia’s CPO prices, despite being the biggest palm oil producer, had been raised in their cabinet meeting several times.
In his speech at the opening of the POC 2023, Bursa Malaysia chairman Tan Sri Abdul Wahid Omar highlighted new products with key features and the exchange’s accomplishments in this area.
“For the first time in its history, CPO prices breached RM8,000 per tonne in March 2022, before retreating to RM3,400 in September.
“Similarly, our BMD’ global benchmark CPO Futures contract (FCPO) achieved a record-breaking trading volume of 16.2 million contracts, equivalent to 405 million tonnes, surpassing its performance in 2021 of 390 million tonnes. This is more than five times the global production,” Abdul Wahid said.
He also highlighted new innovative financial products to keeping up with the times for financial flexibility on this front.
“As the global hub for palm oil price discovery, BMD remains steadfast in developing a sustainable marketplace by improving our ecosystem and enhancing our products as a reliable hedging instrument against price volatility.
“For example, we have launched the Alternative Delivery Procedure (ADP) in September 2022 for our main contracts, namely the FCPO, East Malaysia Crude Palm Oil Futures (FEPO) and Crude Palm Kernel Oil Futures (FPKO),” he said.
“The ADP facility enables sellers and buyers to make and take delivery of contracts on terms other than those specified by the exchange, or to renegotiate delivery terms that are more compatible with their physical business operations,” Abdul Wahid added.
He said the BMD had also introduced an inter-commodity spread functionality between FCPO and FEPO, which enables spread trade execution between the two products at a “click of a button”, for the convenience of the trading community.
“This inter-commodity spread functionality eliminates the risk of slippage from executing separate individual legs and reduces monitoring time by allowing the trading platform to capture the desired spread.
“Moreover, with inter-commodity spreads, traders can now easily trade their viewpoints on Malaysia’s various market dynamics between Peninsular Malaysia and Sabah and Sarawak,” he said.
The BMD also plays a significant role in promoting sustainability and responsible practices among palm oil players and the larger derivatives ecosystem.
“We are especially encouraged by the Malaysian Palm Oil Certification Council’s revision of the Malaysian Sustainable Palm Oil (MSPO) certification in March 2022, which reinforced the industry’s commitment to environmental, social and governance practices throughout the supply chain,” Abdul Wahid said.
“In support of this commitment, the exchange endeavours to ensure that all FCPO and FEPO deliveries must come from MSPO-certified sources.”
Meanwhile, the CME Group executive director for agricultural products Nelson Low acknowledged Malaysia’s historical role in setting CPO prices.
“For over 40 years, the FCPO is actively used by edible oils and fats industry players as a risk management solution, as well as by fund managers and financial institutions for managing price fluctuation in the market,” Low said in his opening speech.
“The FCPO contract, in particular, continues to be actively traded, recording a strong performance of a total of 16.2 million contracts traded in 2022, breaking the previous record of 15.6 million, which is an increase of 3.8%.
“The higher trading volume is largely contributed by foreign institutions, which accounted for 50% of the trading volume,” he added.
Low said the strong growth demonstrated the continued confidence from the global trading community in FCPO as an effective risk management tool in times of volatility.
“I am confident these results at BMD as well as robust support from market participants to its products will further enhance Bursa’s commitment to strengthen Malaysia’s position as the centre for palm oil discovery and its mantle as the global premier palm oil market,” he said.
China’s Dalian Commodity Exchange vice-president Wang Weijun highlighted China’s role as being one of the largest importers of palm oil and reaffirmed its commitment.
“Since 2006, we have conducted close cooperation with the BMD. Using the annual POC Malaysia Conference and the International Oils and Oilseeds Conference, we have continuously deepened multi-level cooperation and exchange in various areas including products and markets.
“The POC conference has built a bridge among the global oils and oilseeds industries.
“We hope that the POC 2023 can further play its role as a platform for information integration, further promote industry exchanges, build closer ties and explore new development opportunities of the industry under the current international situation and the changing markets of palm oil,” Wang added.