By Claire Leow May 24 (Bloomberg) -- A dollar-denominated palm oil contract introduced by CME Group Inc., the largest futures exchange, may attract U.S. and European investors, according to Dorab Mistry, a director at Godrej International Ltd. The contract started trading today, with September-delivery bid at $730 and offered at $784.50 a ton at 5:53 p.m. Malaysia time. Final cash settlement prices are based on ringgit futures on the Malaysia Derivatives Exchange, where August-delivery closed little changed at 2,490 ringgit ($750) a ton. About 90 percent of the world’s palm oil, used in fuel and cooking, is produced in Indonesia and Malaysia, and the commodity is the cheapest and most traded cooking oil. Futures in Kuala Lumpur surged 57 percent last year on demand from China and India, the biggest consumers. Soybean oil in Chicago advanced 21 percent. “The main players are likely to be U.S. and European consumers and investors who are not comfortable trading a ringgit contract,” said Mistry from Godrej, one of India’s largest traders of cooking oils. While local traders in Malaysia and Indonesia “may not be significant” participants, “refiners who export in dollars and crude palm oil shippers who export will find it an attractive hedge,” he said May 18. “It’s an ideal arbitrage instrument for the palm-soya spread,” he said. ‘Added Liquidity’ The premium of soybean oil over palm oil dropped as low as $54.94 a ton on April 30, from a 12-month average of $128.97 a ton, according to Bloomberg data. The two represent about 61 percent of world edible oils, the CME said. “There are synergies with other major vegetable oils,” Timothy Andriesen, CME’s managing director for commodities, said in an e-mail May 21. “Producers have the flexibility to use the two contracts together to manage their risk. We see this as a valuable tool for multinational producers and manufacturers.” While dollar futures “should give some added liquidity” to the ringgit contract, traders in Indonesia and Malaysia already have “quite a good future to trade,” said Scott Briggs, agricultural commodities strategist at Australia & New Zealand Banking Group Ltd. “They have achieved a market of this size, so why would they start trading more.” Rupiah, Ringgit The Indonesian rupiah climbed 11 percent against the dollar in the past year, outpacing an advance of 5.3 percent in the ringgit, Bloomberg data tracking currency performance show. The CME contract “definitely increases the visibility of palm oil as a commodity and we could see increased sensitivity of crude palm oil to other commodities,” said Arhnue Tan, a senior analyst at ECM Libra Capital Sdn. Trading will typically be low for a new contract, Tan said. The tie-up between CME Group and Bursa Malaysia Bhd., which also manages the nation’s stock exchange, was announced last year. CME has since signed agreements with Bolsa Mexicana de Valores and the National Stock Exchange of India. The CME bought its rival Chicago Board of Trade in 2007. To contact the reporter on this story: Claire Leow in Singapore at cleow@bloomberg.net

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