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Palm Oil and Economic Growth in Asia

Mar 16, 2012 || David Lehman || No Comments

Last week a group of CME Group staff attended the annual Palm and Lauric Oils Conference & Exhibition Price Outlook (POC) conference hosted by our partner exchange, Bursa Malaysia Derivatives (BMD), in Kuala Lumpur, Malaysia.

Now in its second decade, POC has become the leading forum for participants in the oils and fats industry to discuss all aspects of the trade.  In the words of Tun Mohamed Dzaiddin Hj. Abdullah, Chairman of Bursa Malaysia Berhad, “we recognize that POC is where it is today because of the support and passion of our friends and colleagues in the industry.”   This year, more than 2,000 people from 40 countries attended sessions over three days, covering production, pricing, hedging strategies, regulation, and a host of broader agribusiness topics.

This year’s dialogue took place against the backdrop of ongoing volatility in world markets, with the specter of Eurozone sovereign defaults, natural disasters in Japan, and prolonged instability in the Middle East providing a succession of upsets which have underscored a deeper trend dubbed by our Chief Economist, Bluford Putnam, as the Era of Dissonance.

Despite the global economic challenges, a tone of optimism characterized the dialogue across the sessions at POC this year. The reason? There is reason to be optimistic about Asia. Charles Carey, CME Group board member, highlighted this in his Partner’s Address:

“One of the brightest areas on the global economic map is Asia.  With most economies in the region continuing to record annual GDP growth, and increasing prosperity driving demand for raw materials, Asia is now routinely cited as the engine that will drive global recovery.  Alongside economic growth comes increased sophistication in markets, and an ever-greater need to manage price risk as manufacturing, imports and trade expand.” 

When most hear this, thoughts immediately turn to China, which has posted 10 percent annual GDP growth on average for over 20 years. But there are other economies in Asia that are increasingly important in the global marketplace, and this conference was a reminder of that.

For example, we entered into a strategic partnership with BMD in September 2009 with the goal of mutually-benefiting both exchanges through cooperation on a number of key projects.  For CME Group, listing BMD’s FCPO contract, the global benchmark for pricing crude palm oil, on CME Globex has significantly expanded access to this vital risk management tool that represents  the world’s most-consumed edible oil.   The growth potential for trading in FCPO is attractive, with the potential to match volumes in our own Soybean products.

In its first year, the average daily volume (ADV) in crude palm oil futures rose 47 percent, growing from 16,389 contracts a day to 24,078; while open interest in the same product was up 59 percent, from 19,338 contracts to 23,085.

But our partners are not content to rest on their laurels.  Just the week prior to the conference, BMD announced the launch of a new clearing and settlement system to provide faster and more efficient post-trade services for its clearing members.  These are signs of confidence in the future, and an important reminder that when we hear about economic growth in Asia, it’s not just in Shanghai or Hong Kong.  It’s also in places like Kuala Lumpur.