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.