S'pore to offer palm oil futures contract

S'pore to offer palm oil futures contract

SINGAPORE (Bloomberg): The Singapore Commodity Exchange may
start trading a palm oil futures contract, a move that would
challenge the dominance of the Kuala Lumpur Commodity Exchange,
where crude palm oil is exclusively traded.

The plan has annoyed the KLCE, which has seen daily trading
volume of crude palm oil futures slump 35 percent after the
government introduced capital controls in September that blocked
repatriation of trading profits.

"Of course it's direct competition for us, but what can we do
about it?" said Raghbir Singh Bhart, chief executive director at
the KLCE.

Malaysia is the world's largest producer of palm oil, with
exports of the commodity raking in 9.8 billion ($2.6 billion) in
the first half of 1998.

Exports of palm oil -- Malaysia's top agriculture foreign
exchange earner -- are projected to reach 18.6 billion in 1998,
up 54 percent from 1997, the government said.

Sicom's plans to trade palm oil futures follows the Nov. 23
sale of a Hang Seng Index futures contract by the Singapore
International Monetary Exchange. The contract competes with a
contract traded by regional financial rival, Hong Kong.

Hong Kong authorities also made it clear they were none too
pleased by Singapore's move, and attempted to block it by
restricting real-time pricing information on the benchmark Hang
Seng Index.

As for palm oil, starting a contract has "always been at the
back of (our) heads," said Robert Tan, a Sicom director and
managing director at Refco (Singapore) Pte., a unit of Chicago-
based Refco Group.

Sicom will set up a working committee soon to study palm oil
industry trends and work out contract details, said Michael
Coleman, another director at the exchange. Coleman, Cargill Asia
Pacific Ltd.'s manager for energy, said Sicom is also looking
into starting a zinc futures contract.

The exchange, which trades natural rubber and coffee futures,
is gathering feedback on likely interest in a palm oil contract.

Singapore palm oil trading company Kuok Oil & Grains Pte. has
been contacted, as well as Societe Generale and several
Indonesian, U.S. and European companies, said Kuala Lumpur-based
Sree Kumar, executive director at KAF-Refco Sdn. Bhd. Most of
KAF-Refco's customers are foreigners.

Analysts said a new palm oil contract on Sicom will cater to
non-Malaysian palm oil trading companies, many of whom are
shunning the KLCE, even though Malaysia has backpedaled to allow
profits from trading derivatives to be repatriated.

Foreign investors, who account for about 20 percent of total
turnover at the KLCE, pulled out after Malaysia imposed capital
controls.

Oei Hong Bie, a Sicom director and managing director of
Singapore Tong Teik, one of the largest natural rubber traders in
Southeast Asia, says a new contract would not harm Malaysia.

"We have no details on what kind of palm oil futures contract
it will be, but whatever it is, (it) will be complementary," to
the existing crude palm oil futures contract traded on the KLCE,
said Oei.