CHINA yesterday gave the go-ahead for Dalian Commodity Exchange to trade palm oil futures, to meet hedging needs for the domestic industry.
Palm oil, used as food and in products ranging from cosmetics to biofuel, is the most used and traded vegetable oil on the global market.
China is one of the world's major palm oil users, accounting for 14 percent of global consumption in 2006. But it imports all its needs, mainly from Malaysia and Indonesia.
Driven by its catering, food processing and other industries, China's palm oil imports have been rising fast since 2001 and it became the world's largest importer in 2004. Imports totaled 5.08 million tons in 2006, or 14 percent of the global trade volume.
China Securities Regulation Commission said the new contract could facilitate price discovery and make the domestic industry more competitive by offering hedge tools for China's palm oil traders, processors and users, such as instant noodle makers.
"The success of any commodity futures is if there's a hedging need in that market," Cao Yanhui, an analyst at broker CIFCO (Liaoning). "It doesn't matter that China is not a palm oil producer."
Japan doesn't produce natural rubber but Tokyo's rubber futures are a world pricing benchmark, Cao said.
Palm oil became the fifth futures product approved by CSRC this year. The commission last month gave the green light to the Shanghai Futures Exchange to launch gold contracts.
CSRC indicates the launch of palm oil futures would come sooner than Shanghai's gold contracts. A spokesman for the Dalian exchange said the bourse is prepared and expecting to trade palm oil very soon.
Palm oil is the second most-consumed vegetable oil in China, after soybean oil. The Dalian exchange, based in the northeastern Liaoning Province, already trades soybean oil futures.