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Smooth Transition of RBD Palm Olein Futures after Opening up to Overseas Investors

Date:22 January 2021
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January 22, 2021 marks the first month after opening RBD palm olein futures to overseas investors. Over the past month, thanks to the great support from all the relevant parties in the domestic and overseas markets, the RBD palm olein futures market has maintained stable and orderly operation, with active participation from overseas investors and positive feedbacks from relevant parties.

Stable and orderly market operation

As China’s first listed agricultural product futures opened to the outside world, the RBD palm olein futures has attracted much attention. By January 21, a month after the opening, approximately 40 overseas investors have participated in the trading of this product. Over the 1 month period, the RBD palm olein futures’ trading volume was 20.166 million lots, the turnover totaled 1.4 trillion CNY, and the average daily open interest stood at 447,000 lots. Corporate clients accounted for 59.2% of the average daily open interest, up about 5 percentage points from November 2020. In terms of price fluctuations, the highest closing price and the lowest one recorded for the dominant contract of the RBD palm olein futures were 7,296 CNY/MT and 6,528 CNY/MT, respectively, fluctuating within a relatively small range.

Shi Hengyu, an analyst from Luzheng Futures told the journalist in an interview that the price fluctuations of RBD palm olein futures in the past month were closely correlated with the physical market. “From Q4 2020 to Q1 2021, the inventory of palm oil in Malaysia was at its seasonal low, providing support to the futures price. When Malaysian Palm Oil Board (MPOB) realeased a report on January 11, the palm oil price began to fall due to the adequate inventory in Indonesia and the weak demand in Malaysia. As for the RBD palm olein futures on DCE, the dominant contract P2105 reached its highest price of 7,356 CNY/MT on January 11, before it fell to the lowest price of 6,468 CNY/MT on January 20. Overall, the price trend of the futures on DCE well reflects the changes of market fundamentals. ”

A new way for international investors to manage risks

CCFT Group (Singapore), a global trading company specializing in agricultural products, traded the P2105 contract from the very beginning when RBD palm olein futures opened up to overseas investors. According to Zhang Yang, Managing Director of the company, the Company is mainly engaged in export trade with China and needs to hedge against price risks from the target sales areas. Therefore, they traded the RBD palm olein futures right after it was made available to the overseas investors, in order to get familiar with the trading process and rules as early as possible and lay a foundation for hedging against price risks in the future. “After overseas investors are allowed to trade RBD palm olein futures, they can open an account and trade in the Chinese mainland, and the trading funds can flow in and out without restrictions,” said Mr. Zhang.

A representative from a Malaysia-based oils and oilseeds processing company which also traded the futures said that, for palm oil processing companies whose products are mainly sold to China, DCE’s RBD palm olein futures provides good liquidity and price transparency for risk management. He noted that, “We can lock in profit through the two markets - Bursa Malaysia Derivatives Berhad (BMD) and DCE. Due to the good liquidity and high efficiency of DCE’s palm olein futures market, we can hedge against risks at relatively low cost.”

Enhancing the overseas market promotion and service

To help overseas investors better understand the trading conventions of futures market in China, a number of Futures Company Members have worked with Overseas Intermediaries to hold online workshops to explain in detail the trading rules of DCE’s RBD palm olein futures, as well as other rules and arrangements. These rules and arrangements range from the regulatory system of China’s futures market (China Securities Regulatory Commission (CSRC), local bureaus of CSRC, futures exchanges, China Futures Market Monitoring Center (CFMMC), and China Futures Association (CFA), business management measures, detailed rules of RBD palm olein futures, and the Futures Company Members’ arrangements on deposit and withdrawal, trading and settlement, etc. They are designed to provide Overseas Intermediaries with investment education services that are comprehensive, thorough and tailor-made, and to help them fully understand the trading system of China’s futures market.

In addition, members of DCE, banks and other financial institutions also offer all-round services for overseas investors in technology support and fund settlement. “Having known the actual needs of overseas investors, we assist overseas intermediaries and software vendors in developing software functions adapted to the trading habits of overseas investors, such as ‘automatic offset’, thus allowing them to trade futures with the trading logic of net positions, ” said Zhong Heyi, Director of Institution Service Division, COFCO Futures.

“We are working with the Bank of China to facilitate fund transfer, foreign exchange settlement and sales for the overseas investors by allowing the fund transfer between banks and futures companies. Given the recent fluctuation of RMB exchange rate, our contact person has established real-time communication with overseas intermediaries to ensure that the currency exchange can be done as soon as possible, ” added Mr. Zhong.

According to some market analysts, the efforts made by all relevant parties to open accounts and carry out market promotion have paved the way for the smooth transition.

A senior official of DCE noted that the opening up of RBD palm olein futures to overseas investors represents one of the efforts China has made to open its capital market to the outside world.. As China’s economy continues to grow and the industry transforms, the oils and oilseeds industry has gradually become one of the industries in China with the highest level of openness, the most intense competition and the strongest linkage between domestic and foreign markets. There is increasing demand for other futures to open up to the outside world. Next, DCE will continue to advance the opening up of more futures products including soybean meal and soybean oil, and make the oils and oilseeds futures products performe the function of price discovery and risk management.

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