February 21 2004 - MALAYSIA’S latest palm oil-related derivatives have thepotential to attract at least seven strong market makers to strengthen thenew hedging tool’s liquidity.
The newly-launched palm kernel oil futures (FPKO) on the MalaysiaDerivatives Exchange (MDEX) have so far attracted four companies as marketmakers.
They are IOI Group Sdn Bhd, KL Kepong Sdn Bhd, Kuok Oil and Grains Sdn Bhdand Wilmar Trading Pte Ltd have traded in the FPKO.
Primary Industries Minister Datuk Seri Dr Lim Keng Yaik, who launched theFPKO at MDEX yesterday, expressed his dissatisfaction with the situation.
He said there are at least three more government-linked plantationcompanies that are more than capable to be market makers for the futurescontract.
Dr Lim also said that these big companies are not responsive to thebenefits the facility offers although the crude palm kernel oil market ison an upward trend.
Even though we know that the produces, processes and volume areincreasing, these companies are not coming in. It’s either they don’t knowor don’t care, he added.
Also present at the launch of the futures contract were MalaysiaSecurities Exchange Bhd executive chairman Datuk Mohd Azlan Hashim andMDEX executive chairman Abdul Jabbar Abdul Majid.
As of December last year, the average price of crude palm kernel oilreached a year high of RM2,083.50, after declining to RM1,776.50 inJanuary and RM1,339.50 in August.
Dr Lim said the launch of the futures market was timely in view of thecommodity’s market growth during the past decade.
It will provide the much needed risk management tool to marketparticipants and also trading and hedging opportunities, he said.
Last year, Malaysia’s production of crude palm kernel oil increased 70.3per cent to 1.64 million tonnes from about one million tonnes in 1993.
Palm kernel oil has a wide spectrum of uses in the production of bothedible and non-edible products such as confectionery fats, ice cream,soaps and oleochemical products.
Its major markets include China, India, Turkey, and the European Union andthe US. These markets represent 64 per cent of world imports of thecommodity last year.
In comparison to coconut oil, which is another lauric oil, Dr Limanticipates that by 2005, crude palm kernel oil production will overtakecoconut oil as the world’s largest lauric oil produced.
Last year, world production of crude palm kernel oil increased 80.7 percent to 3.23 million tonnes from 1.79 million tonnes in 1993. The oilaccounts for 49.6 per cent of global lauric oil production today comparedto 37.8 per cent about 10 years ago.
During the same period, world coconut oil output increased by 11.6 percent to 3.29 million tonnes but its global share had reduced from 62.2 percent to 50.4 per cent.