Migrated – Original Post Date: Jun 08, 2018
Palm olein futures launched last month at the Chinese-backed Asia Pacific Exchange (“APEX“), and demand has been steady with Straits Financial customers actively trading the contract. On the first trade date, Straits’ customer volume accounted for more than 30% of market share and Straits was the first member to clear a trade.
APEX, which is the first international exchange opened by Chinese investors, is bridging the gap in palm oil futures by listing a dollar-denominated palm oil futures product. Since the majority of international trade in palm oil is in US dollars, this new product will benefit producers and traders by helping to reduce currency conversion risk and opening up arbitrage opportunities. APEX’s trading hours overlap with Bursa Malaysia and the Dalian Commodity Exchange, so traders now have even more trading opportunities across palm oil futures markets. Furthermore, the delivery product at APEX is RBD palm olein, which stands for Refined Bleached Deodorized), the most common variety, making it a very fungible futures contract.
Background
Palm oil derives from the fruit of the oil palm tree, Elaeis guineensis, which grows solely in the tropics, mainly Indonesia and Malaysia, and is a native tree of West Africa. Currently, palm oil is highly valuable because it separates into different oils for consumption and production. It is used primarily for cooking in developing countries and is used elsewhere around the world in cosmetics, food products, and detergents. While it is a small ingredient in U.S. diets, more than half of packaged products in US grocery stores contain some trace of palm oil – found in everything from lipsticks to soaps, industrial lubricants, detergents, polishes, waxes, and ice cream. Palm oil is essential to both the developing and developed world.
Trading Trends
Trading in the palm futures contract at APEX has been impressive with over 70,000 contracts traded on the first trade date, May 25th, and has grown to more than 130,000 contracts traded on May 31st. To compare, at the Dalian Commodity Exchange, RBD Palm Olein futures traded over 257,000 contracts this week on June 6th while Crude Palm Oil futures at Bursa Malaysia traded just over 26,000 contracts on the same day. Based on volume, it appears APEX has a very liquid contract with much institutional participation. Prices are currently in contango, and palm oil is known to have a high correlation to other vegetable oils, such as soybean, sunflower, rapeseed, and corn oil. Some of the factors that influence the price of crude palm oil: demand, weather patterns, import policies, operational efficiencies, supply chains, currency exchange, replanting activities, tax rates, and market sentiment.
In the past couple weeks, Malaysia and Indonesia palm oil exports decreased, and traders are anticipating hikes in palm oil prices due to dips in production in those countries. Just this week, Rabobank issued a report stating there will be a decrease in palm oil production from 2022-2025 due to aging palm plantations, limited land for expansion and ineffective replanting activities.
Trading with Straits
As the first clearing member to buy the Palm Olein futures contract, Straits is proud to offer traders access to the APEX exchange as well as the Dalian Commodity Exchange and Bursa Malaysia. For producers and traders that want to hedge and arbitrage palm oil, Straits clearing memberships offer full connections to all three of these exchanges. With your account at Straits, traders can trade a full suite of listed and over the counter products including palm oil, soybean, and other agricultural products. Straits knowledge and experience in agricultural markets is second to none. Please contact us to open an account and to learn more about arbitrage strategies in Palm Oil.
For more information about the APEX palm olein futures contract, please contact Straits Financial in Singapore at +65 6672-9669 or in the US at +1 312-462-4499. To follow the latest market updates, please follow us on Twitter @StraitsFinancia and on Linkedin here.
DISCLAIMER: This document is issued for information purposes only. This document is not intended, and should not under any circumstances to be construed as an offer or solicitation to buy or sell, nor financial advice or recommendation in relation to any capital market product. All the information contained herein is based on publicly available information and has been obtained from sources that Straits Financial believes to be reliable and correct at the time of publishing this document. Straits Financial will not be liable for any loss or damage of any kind (whether direct, indirect or consequential losses or other economic loss of any kind) suffered due to any omission, error, inaccuracy, incompleteness, or otherwise, any reliance on such information. Past performance or historical record of futures contracts, derivatives contracts, and commodities is not indicative of the future performance. The information in this document is subject to change without notice. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices.