Volatile Markets Give Lift to CME's Palm Swaps

By Huileng Tan

KUALA LUMPUR--The CME Group is seeing growing participation in its U.S. dollar-denominated Malaysian crude palm-oil calendar swaps amid market volatility, executives said on the sidelines of an industry conference Tuesday.

Through CME ClearPort, a record 6,200 lots of palm oil swaps were cleared in September last year, while swap volume grew 59% in 2014 over an annualized figure in 2013, executives from the market operator said in Kuala Lumpur.

"Obviously, there's been a lot of volatility in the commodity markets as prices have come down from the elevated levels they were at in the last few years and that [prompts] more need to hedge," said managing director for commodity research and product development, David Lehman.

Last year, global benchmark Bursa Malaysia Derivatives crude palm-oil contract hit an 18-month high of 2,916 ringgit a ton in March before tumbling to a 5½-year low of 1,914 ringgit a ton in September. They then hit a six-month high in January due to concerns about floods hitting production, before falling back on slowing demand. The futures rallied last month after major producer and user Indonesia announced a subsidy hike for biofuel production.

Other factors contributing to price swings in palm oil prices include the slump in crude-oil prices and the weak Malaysian ringgit, which dropped to a six-year low against the U.S. dollar in January.

CME's palm swap was launched in July 2013 after the exchange's U.S. dollar-denominated crude palm-oil contract failed to gain traction due to the strong following on BMD. The palm swap references the BMD CPO contract.

Two-thirds of those participating the CPO swaps are biofuel traders and producers, said CME's executive directory of commodity products in Asia, Nelson Low.

"It's a useful tool for people who want to trade CPO but do not want the currency exposure [with the Malaysian ringgit]," said Mr. Low.

The CME prices, which are settled on a calendar average, is also appropriate for some users who use a fixed amount of palm oil in the calendar month, and for those who do spread trade against U.S. dollar-denominated gasoil.

Mr. Low added that the CME is planning to launch more palm products but declined to reveal further details.

Write to Huileng Tan at [e-mail]

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