Indonesia’s new CPO futures – is there room for two?

Indonesia’s new CPO futures – is there room for two? 

 

JAKARTA, Feb 25 – Indonesia’s planned launch of a new crude palm oil futures contract for the world’s top producer will face severe difficulties given Bursa Malaysia’s dominant position, a top industry analyst said on Thursday. “There is room for only one futures exchange for palm oil,” said Dorab Mistry, who handles the vegetable oil trading portfolio for the London unit of India’s Godrej Industries, in an email to Reuters.

Mistry said the Bursa Malaysia Derivative Exchange (BMD) has the advantage of being the first mover, and has gained credibility as it has been around a long time. “Therefore the new Indonesian exchange will find the market very challenging,” he said. The Indonesia Commodity & Derivative Exchange (ICDX) aims to launch the contract in April, but is chasing trading volumes of more than 4 million lots a month on Bursa Malaysia.

The move is the second attempt to create an Indonesian benchmark price, providing a better reflection of local supply and demand, and eliminating currency risk. But traders and analysts have doubts as to whether it can succeed given the lack of regular industry data releases in Indonesia to help buyers and sellers properly judge price direction. “Poor and delayed official data in Indonesia is always a problem,” Mistry said.

The absence of data and access to industry information by small traders, will make it hard to build up liquidity, he said. Lack of liquidity was one of the main reasons that the previous attempt failed. “We as a company would not trade on a new exchange. As time goes by and it develops credibility, the position may change,” Mistry said. “In most cases, we prefer to take physical delivery and we like to trade physical quantities. That is why we are happy to buy and sell Indonesian palm products physically from reputed large Indonesian companies,” he added. – Reuters