The crude palm oil futures (FCPO) is a preferred hedging tool among the world’s edible oil  traders. NSTP file pix.

BURSA Malaysia Derivatives Bhd is expected to settle more than 12 million crude palm oil futures (FCPO) contracts this year, said chief executive officer Jamaluddin Nor Mohamad. 

“In the last five years, the palm oil trading volume on the futures market has doubled. Back in 2012, it was only six million contracts. This year, we are expected to surpass 12 million contracts,” he said in a recent interview.

Bursa Malaysia introduced the FCPO contract in 1980. It has now grown into a globally-trusted product that is accessible and tradeable on the Globex trading platform via partnership with CME. 

The FCPO is a preferred hedging tool among the world’s edible oil  traders. Within Bursa Malaysia’s suite of derivatives products, the FCPO contract is the most popular.

For the past 30 years, Bursa Malaysia has been the leading benchmark for the world’s palm oil price discovery marketplace.

Today, Malaysia produces some 20 million tonnes of palm oil a year, of which about 19 million tonnes are shipped out of the country. The palm oil industry is an important foreign exchange earner for Malaysia.

Bursa Malaysia’s palm oil futures market value adds to this. Each FCPO contract is equivalent to 25 tonnes. So, at more than 11 million contracts, that works out to 286 million tonnes of palm oil settling at the futures market. 

“If Malaysia only has the physical market, we would only be trading around 20 million tonnes of palm oil. But with Bursa Malaysia’s palm oil futures market settling 11.42 million FCPO contracts amounting to 286 million tonnes, we have traded up more than 14 times that of the physical market,” said Jamaluddin.

He said Malaysia's commodities market has seen tremendous growth in the past few years with the increasing presence of high-frequency traders. 

This has made FCPO price discovery more efficient and transparent and contributed to market liquidity. 

It is well known that current palm oil trades at the Dalian Commodity Exchange are many times more than the average daily volume settled at Bursa Malaysia Derivatives Exchange. 

When asked how Bursa Malaysia is maintaining its global palm oil price benchmarking, Jamaluddin said it all boils down to the exchange’s role in nurturing a thriving ecosystem.

This includes ensuring transparent, efficient and convenient trading environment for market participants.

“We consistently enforce rules to ensure that trading takes place in an open and competitive environment.”

In facilitating Islamic finance, the exchange has, since 2009, operated the Bursa Suq Al-Sila for banks to buy and sell palm oil.

Jamaluddin said an Islamic bank buys palm oil from the spot market and then sells it to the borrower. The borrower then sells the palm oil to a third party in the spot market for cash, using the bank as its agent, thus securing the financing.

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