Market participants must be prepared to capitalise on price volatility

Market participants must be prepared to capitalise on price volatility

KUALA LUMPUR: Market participants must be prepared to capitalise on heightened price volatility brought about by the challenging operating environment and markets, Bursa Malaysia chairman Tan Sri Abdul Wahid Omar said.

This is given the likelihood that global macroeconomic headwinds will persist in 2023, he said.

According to him, in times of market volatility, both producers and consumers of commodities might find exchange-traded derivatives to be effective risk-mitigation tools that could also preserve their portfolio values.

“As the global hub for palm oil price discovery, Bursa Malaysia Derivatives remains steadfast in developing a sustainable marketplace by improving our ecosystem and enhancing our products as reliable hedging instruments against price volatility,” he said in his opening remarks at the Palm and Lauric Oils Conference and Exhibition (POC2023) here today.

POC2023, which ends tomorrow, is organised by Bursa Malaysia.

Citing an example, Abdul Wahid said Bursa Malaysia recently launched the Alternative Delivery Procedure (ADP) in September 2022 for its main contracts, namely crude palm oil futures (FCPO), East Malaysia crude palm oil futures (FEPO), and crude palm kernel oil futures (FPKO).

“The ADP facility enables sellers and buyers to make and take delivery of contracts on terms other than those specified by the exchange, or to re-negotiate delivery terms that are more compatible with their physical business operations,” he said.

On the outlook of the industry, Abdul Wahid said the Malaysian palm oil industry is expected to maintain its robust standing and demonstrate strong growth despite the ongoing global economic uncertainty and recession fears in 2023.

He said crude palm oil (CPO) production is expected to increase by three per cent to 19.0 million tonnes in 2023, up from the 18.45 million tonnes recorded in 2022, due to the expansion of mature planted areas, particularly in Sarawak as well as Peninsular Malaysia, given favourable weather conditions and improved labour situation.

“In tandem with this projection, the Malaysian Palm Oil Board anticipates that exports of Malaysian palm oil to increase by 3.7 per cent to 16.30 million tonnes in 2023, up from 15.72 million tonnes in 2022, owing primarily to continued demand from importing countries,” said Abdul Wahid.

Meanwhile, CME Group executive director of agricultural products Nelson Low said it has become even more imperative for producers, processors, and end-users to manage price risks using futures and options amid the unpredictability around palm oil due to policy changes and price movements of related oils as they compete for a share of the global vegetable oil markets.

“In mid-January this year, we saw Malaysian palm oil futures retreat from a one-month high as traders took profit, and as losses in rival edible oils due to higher-than-expected US supplies added pressure,” he added.

Last December, the European Union (EU) agreed on a new law that makes it an obligation for companies to ensure that commodities sold in the EU do not come from forested land.

“This has sparked a response from the Council of Palm Oil Exporting Countries (CPOPC), led by Malaysia and Indonesia, with the possibility of stopping exports to Europe,” he noted. – Bernama