PETALING JAYA: Bursa Malaysia Bhd CEO and Bursa Malaysia Derivatives Bhd chairman Datuk Muhamad Umar Swift (pix) believes the East Malaysia Crude Palm Oil Futures (Fepo) will provide greater price transparency for palm oil and risk management for oil palm players in Sabah and Sarawak.
Compared with the crude palm oil futures (FCPO), he said, Fepo has physical delivery ports in Sabah and Sarawak, which efficiently eliminates the logistical cost barrier that prevented East Malaysian firms from hedging with the existing futures contracts.
“This will improve the cost effectiveness of managing price risk for palm oil industry players in East Malaysia, both upstream and downstream. As a result, their refining margins and competitiveness in selling end products to their customers will also improve,” Umar said in his welcoming address at the virtual launch of FEPO yesterday.
Aside from the physical delivery location, trading of the East Malaysia futures contract begins at 9am compared with FCPO’s start of 10.30am. The CEO explained that this is designed to meet the needs of participants who have exposure to East Malaysian palm oil as well as to meet the demand of arbitrageurs trading in China’s market.
Umar said the Covid-19 pandemic has greatly affected the global commodities sector, in production and demand, besides creating supply chain and market disruptions.
“In a highly volatile environment, it is critical for businesses to consider implementing a more robust price risk management strategy to mitigate against fluctuating commodity prices while remaining competitive.
“Looking ahead to 2022, market participants need to brace themselves for another uncertain year, with numerous key elements having the potential to cause heightened price volatility. These include the unpredictable weather conditions, uncertain economic recovery, and potential changes to global trade policy.”
Despite the volatile conditions, Umar noted that Bursa’s derivatives market continued to see remarkable growth as it grew 35% in 2020 to hit a total trading volume of 18.2 million contracts.
In addition, the year saw a record 14.6 million FCPO contracts traded, which is equivalent to 365 million tonnes of crude palm oil, representing five times the world’s production.
