A new palm oil futures contract (FCPO) has been launched by Bursa Malaysia for East Malaysian palm oil producers, the company announced on 4 October.
The launch of the new contract came against a backdrop of Bursa Malaysia crude palm oil (CPO) prices rising to RM5,000/tonne (US$1,205/tonne) on 6 October amid concerns over tight edible oil supplies and the higher export estimates for the coming Diwali festival, the commodity exchange said.
“The [new] contract mirrors most of the FCPO specifications, with enhancements made to benefit East Malaysian palm oil players,” Bursa Malaysia Derivatives CEO Samuel Ho said in May when plans to introduce the new contract were first announced.
Bursa Malaysia said the new contract had been designed to bring greater price transparency for palm oil market producers in Sabah and Sarawak and would act as an alternative risk management tool.
Palm oil traders in the two states have said the current palm oil contract puts them at a disadvantage — East Malaysian crude palm oil is typically sold at a discount to spot prices in Peninsular Malaysia, while freight costs are higher as the designated delivery points are also in the peninsula, making physical delivery unfeasible, according to a 24 May report by The Edge Markets.
“With Sabah and Sarawak accounting for nearly half of the country's CPO production, we identified a need to provide a hedging mechanism that caters to the East Malaysian palm oil players,” Datuk Muhamad Umar Swift, chairman of Bursa Malaysia Derivatives and CEO of Bursa Malaysia Berhad, said.
The new contract — the East Malaysian Palm Oil Futures (FEPO) — caters for physical deliveries in East Malaysia through three designated ports, while helping traders hedge their price risks, according to The Edge Markets report.
Bursa Malaysia’s FCPO contract sets the global price benchmark for palm oil.