A little bit dated, but useful for future reference: http://www.palmoilhq.com/PalmOilNews/palm-oil-may-only-benefit-from-biofuels-demand-1/
Palm Oil Trader, Dorab Mistry, claimed to "have had a very good run over the last 30 months with each of my crude palm oil price forecasts coming true".
It's a well written article, mentioning a lot of interesting facts and factors potentially affecting CPO prices. It even has a prediction on future CPO prices, which most CPO traders would be interested in.
"If crude oil prices stabilise around US$ 100 per barrel with a 10 percent range, then I believe CPO futures need not go lower than 2200 Ringgits for the next few weeks. At that level we should see strong demand growth. Soya oil, on the other hand, needs to decline in price substantially from its current levels. If biofuel use of vegetable oils was not around, the price level would be unthinkable."
Enjoy the article.
Showing posts with label FCPO. Show all posts
Showing posts with label FCPO. Show all posts
Wednesday, September 10, 2008
Thursday, September 4, 2008
Blog Capsule 2: FUPO vs FCPO
I suppose the market today has been pretty boring, so, not surprisingly, this afternoon in my chatbox, there was a passionate discussion between chatter "Dreamy" (or mydreamgetrich) and "Dali" (author of Malaysia Finance blog) about the upcoming FUPO vs the current FCPO contract liquidity in 2 months time. For the record, I came into the picture late, and so, might not have captured the salient points.
Anyway, the debate boiled down to this single question: By November 5, 2008 (Wednesday), which of the 2 contracts (FUPO or FCPO) will have the higher daily volume in their most popular contract months?
Since this involves a specific prediction about the future, someone asked whether I can "blog capsule" this for future reference, and I am glad to do so, since this is an interesting question and discussion, and the answer does not appear obvious when there are several conflicting factors.
Starting first with the reasons to support FUPO popularity, we have Dali with his persuasive arguments, which he has blogged here - http://malaysiafinance.blogspot.com/2008/09/fupos-significance.html - and so, I won't repeat them here.
And on the other hand, the reasons to support FCPO continuing popularity are led by Dreamy & others, which I'll try to summarize here for future reference:
1. In the physical market, it is believed that Malaysian CPO companies prefer to hedge in RM than USD since most of their shareholders are local with RM profitabilities. (although Dali raised the interesting issue about local planters with US$ bonds who might prefer to hedge their US$ exposure).
2. FUPO introduced another complexity and variability (you need to also form a view on future USD/RM currency movements to trade successfully) making it more difficult to trade than FCPO, which is volatile enough already.
3. FUPO doesn't appear to have been well marketed locally by Bursa. Past attempts several years ago to introduce the USD palm kernel futures was apparently appalling.
4. More than one person thinks even if FUPO eventually overtakes FCPO, it might not do so in the first 2 months of implementation, due to the lack of marketing push by Bursa. Also, some of the new products introduced by Bursa failed miserably in the past.
5. Traders currently are used to trading FCPO, so, FUPO with extra currency variability will take some time to get used to (although 2 months might be more than enough time for some to get used to it, other things equal).
6. According to Dreamy, Singapore also trades FCPO in US$ but not very successfully.
7. FCPO most popular month contracts tend to be bunched and skewed hugely in just one month, which is usually the 3rd month and it is very visible compared to the other contract months. On the other hand, it is unclear whether the coming FUPO volume will have similar shape, or flatter across contract months.
8. Dreamy thinks that if local producers with physical oil don't participate in FUPO, then, it might not be as attractive as FCPO, although traders in general would tend to dominate futures volume than true hedgers.
In short, many reasons to support both sides of the fence.
For some reason, testosterone levels must have been high during that discussion, because we ended up with some rather "playful" bets and ended up forming teams! Dali's supporters included Moolah, naruto and ckkuan, and Dreamy's supporters included juicy and ivtac. And to balance the numbers, I lended my support to Dreamy - All in the name of good fun between the boys!
And the prize for the winner? Well, I'm personally not clear exactly now, but between Dali and Dreamy, one of them will apologize to the other every single day for a week for something like that (I'll leave this between Dali and Dreamy to sort out the details). And as for the supporters, well, apparently, the losers will address the winners as "xifu" also everyday for a week! LOL! The things we do in good fun!
So, I hope I've documented this blog capsule accurately. If not, do drop a short comment to correct me here.
Cheers, and good luck to both teams come Wednesday, November 5, 2008!
Anyway, the debate boiled down to this single question: By November 5, 2008 (Wednesday), which of the 2 contracts (FUPO or FCPO) will have the higher daily volume in their most popular contract months?
Since this involves a specific prediction about the future, someone asked whether I can "blog capsule" this for future reference, and I am glad to do so, since this is an interesting question and discussion, and the answer does not appear obvious when there are several conflicting factors.
Starting first with the reasons to support FUPO popularity, we have Dali with his persuasive arguments, which he has blogged here - http://malaysiafinance.blogspot.com/2008/09/fupos-significance.html - and so, I won't repeat them here.
And on the other hand, the reasons to support FCPO continuing popularity are led by Dreamy & others, which I'll try to summarize here for future reference:
1. In the physical market, it is believed that Malaysian CPO companies prefer to hedge in RM than USD since most of their shareholders are local with RM profitabilities. (although Dali raised the interesting issue about local planters with US$ bonds who might prefer to hedge their US$ exposure).
2. FUPO introduced another complexity and variability (you need to also form a view on future USD/RM currency movements to trade successfully) making it more difficult to trade than FCPO, which is volatile enough already.
3. FUPO doesn't appear to have been well marketed locally by Bursa. Past attempts several years ago to introduce the USD palm kernel futures was apparently appalling.
4. More than one person thinks even if FUPO eventually overtakes FCPO, it might not do so in the first 2 months of implementation, due to the lack of marketing push by Bursa. Also, some of the new products introduced by Bursa failed miserably in the past.
5. Traders currently are used to trading FCPO, so, FUPO with extra currency variability will take some time to get used to (although 2 months might be more than enough time for some to get used to it, other things equal).
6. According to Dreamy, Singapore also trades FCPO in US$ but not very successfully.
7. FCPO most popular month contracts tend to be bunched and skewed hugely in just one month, which is usually the 3rd month and it is very visible compared to the other contract months. On the other hand, it is unclear whether the coming FUPO volume will have similar shape, or flatter across contract months.
8. Dreamy thinks that if local producers with physical oil don't participate in FUPO, then, it might not be as attractive as FCPO, although traders in general would tend to dominate futures volume than true hedgers.
In short, many reasons to support both sides of the fence.
For some reason, testosterone levels must have been high during that discussion, because we ended up with some rather "playful" bets and ended up forming teams! Dali's supporters included Moolah, naruto and ckkuan, and Dreamy's supporters included juicy and ivtac. And to balance the numbers, I lended my support to Dreamy - All in the name of good fun between the boys!
And the prize for the winner? Well, I'm personally not clear exactly now, but between Dali and Dreamy, one of them will apologize to the other every single day for a week for something like that (I'll leave this between Dali and Dreamy to sort out the details). And as for the supporters, well, apparently, the losers will address the winners as "xifu" also everyday for a week! LOL! The things we do in good fun!
So, I hope I've documented this blog capsule accurately. If not, do drop a short comment to correct me here.
Cheers, and good luck to both teams come Wednesday, November 5, 2008!
Saturday, August 16, 2008
China and India cancel or renegotiate CPO deals
Interesting, insightful article, for future reference - http://biz.thestar.com.my/news/story.asp?file=/2008/8/16/business/1822275&sec=business
I think this article provides a good one-out-of-many explanations as to why we sometimes see when FCPO, Soyoil or other commodity prices first make a new low, they continue to make even more lower lows if the price drop is rapid. It also explains why it is dangerous to catch a falling knife, because we can never be sure that the low price caught is the bottom. I'm sure you can think of other factors too.
___________
SINGAPORE: Buyers from China and India, the world’s biggest vegetable oil importers, have cancelled or renegotiated around 800,000 tonnes of palm oil deals in the past few weeks as prices slump, dealers said yesterday.
The benchmark Malaysian palm oil futures contract headed for its sharpest fall in 20 years yesterday and has nearly halved since a record peak in March, which they said meant more defaults were inevitable.
“Prices have come down so fast, from US$1,200 a tonne to US$800 a tonne in 45 days, defaults are bound to happen,” said one leading buyer in Mumbai, India’s business capital. “The way the situation is, in the coming days there is the possibility of big defaults.”
Dealers said importers had defaulted on at least 300,000 tonnes of palm oil cargo in the past few weeks, while 500,000 tonnes of deals had been washed out, where traders pay lower prices than those initially agreed.
The benchmark crude palm oil October contract fell as much as RM228, or 8.7%, to RM2,392 a tonne yesterday, a level unseen since Aug 30 last year.
Malaysian exporters said Chinese buyers defaulted on 40,000 tonnes of RBD palm olein cargo yesterday.
“There is a default of 30,000 to 40,000 tonnes since morning, but obviously defaults will be much more than that as prices have come down,” said one dealer at a leading export house.
Chinese buyers said domestic soybean oil prices that had fallen more than a third over the past month were prompting defaults and washouts.
“There have been washouts and defaults over past weeks. Domestic prices have been falling too much, if they take the cargo back home, they will lose more than 1,000 yuan per tonne,” said a trader in Beijing.
Chinese buyers have been seeking discounts of RM300 to RM400 on Malaysian palm oil since last month, a Singapore-based trader said.
An Indian newspaper reported on Wednesday that traders had defaulted on vegetable oil purchases of around 150,000–200,000 tonnes because of a drop in prices.
The Hindu Business Line newspaper said Indian importers had lost up to 1.5 billion rupees in the past two to three weeks as a result of collapsing market prices.
Traders cited the example of one 30,000-tonne ship defaulted on in the past few days in India.
“The buyer refused to take delivery of one 30,000-tonne palm oil ship when it reached Kandla port,” said a trader, referring to one of India’s busiest ports located on its western coast.
Indonesian traders said exports in the first 10 days of August fell by about 100,000 tonnes compared with July after the fall in prices.
(Seng comment: The interesting thing to me is the impact on coming inventory figures. Since exports falls, will this mean higher inventory figures since CPO production is not easy to turn off in the immediate term? This is the irony of agricultural commodities like CPO, since lower prices do not necessarily cause an immediate reduction in inventory, despite economic theories drumming into our ears that low price stimulates demand and should result in lower inventory ... in the real world, time lag exists between prices, demand, supply and inventory. It also explains why when prices fall, they almost never fall in a straight line, and vice versa.)
“We’re a bit worried about India buyers because we have many deals with them,” said a dealer with a palm oil refiner and plantation firm in Jakarta. — Reuters
I think this article provides a good one-out-of-many explanations as to why we sometimes see when FCPO, Soyoil or other commodity prices first make a new low, they continue to make even more lower lows if the price drop is rapid. It also explains why it is dangerous to catch a falling knife, because we can never be sure that the low price caught is the bottom. I'm sure you can think of other factors too.
___________
SINGAPORE: Buyers from China and India, the world’s biggest vegetable oil importers, have cancelled or renegotiated around 800,000 tonnes of palm oil deals in the past few weeks as prices slump, dealers said yesterday.
The benchmark Malaysian palm oil futures contract headed for its sharpest fall in 20 years yesterday and has nearly halved since a record peak in March, which they said meant more defaults were inevitable.
“Prices have come down so fast, from US$1,200 a tonne to US$800 a tonne in 45 days, defaults are bound to happen,” said one leading buyer in Mumbai, India’s business capital. “The way the situation is, in the coming days there is the possibility of big defaults.”
Dealers said importers had defaulted on at least 300,000 tonnes of palm oil cargo in the past few weeks, while 500,000 tonnes of deals had been washed out, where traders pay lower prices than those initially agreed.
The benchmark crude palm oil October contract fell as much as RM228, or 8.7%, to RM2,392 a tonne yesterday, a level unseen since Aug 30 last year.
Malaysian exporters said Chinese buyers defaulted on 40,000 tonnes of RBD palm olein cargo yesterday.
“There is a default of 30,000 to 40,000 tonnes since morning, but obviously defaults will be much more than that as prices have come down,” said one dealer at a leading export house.
Chinese buyers said domestic soybean oil prices that had fallen more than a third over the past month were prompting defaults and washouts.
“There have been washouts and defaults over past weeks. Domestic prices have been falling too much, if they take the cargo back home, they will lose more than 1,000 yuan per tonne,” said a trader in Beijing.
Chinese buyers have been seeking discounts of RM300 to RM400 on Malaysian palm oil since last month, a Singapore-based trader said.
An Indian newspaper reported on Wednesday that traders had defaulted on vegetable oil purchases of around 150,000–200,000 tonnes because of a drop in prices.
The Hindu Business Line newspaper said Indian importers had lost up to 1.5 billion rupees in the past two to three weeks as a result of collapsing market prices.
Traders cited the example of one 30,000-tonne ship defaulted on in the past few days in India.
“The buyer refused to take delivery of one 30,000-tonne palm oil ship when it reached Kandla port,” said a trader, referring to one of India’s busiest ports located on its western coast.
Indonesian traders said exports in the first 10 days of August fell by about 100,000 tonnes compared with July after the fall in prices.
(Seng comment: The interesting thing to me is the impact on coming inventory figures. Since exports falls, will this mean higher inventory figures since CPO production is not easy to turn off in the immediate term? This is the irony of agricultural commodities like CPO, since lower prices do not necessarily cause an immediate reduction in inventory, despite economic theories drumming into our ears that low price stimulates demand and should result in lower inventory ... in the real world, time lag exists between prices, demand, supply and inventory. It also explains why when prices fall, they almost never fall in a straight line, and vice versa.)
“We’re a bit worried about India buyers because we have many deals with them,” said a dealer with a palm oil refiner and plantation firm in Jakarta. — Reuters
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