China Securities Regulatory Commission (CSRC) announced on May 28 that Dalian Commodity Exchange (DCE) was approved to commence RBD palm olein options trading on June 18, 2021, which will also be open to overseas investors. This move signals that RBD palm olein options will become China’s first options allowing overseas investors to trade.
According to information, among all the vegetable oils, palm oil is the one with the largest global output and international trading volume, with the global supply and demand growing steadily. In 2020, both global palm oil production and consumption exceeded 75 million tons, an increase of more than 50% compared with that in 2010. China’ palm oil consumption is completely dependent on import and the country has experienced a fast growth in this regard over the past three years, and the consumption in 2020 approached 7 million tons.
Listed on DCE in 2007, RBD palm olein futures is China’s first futures for solely imported commodity. Since its launching more than a decade ago, the market has been operating steadily and DCE has become the world’s largest RBD palm olein futures market. According to statistics, from 2010 to 2020, the annual trading volume of RBD palm olein futures on DCE has been at the forefront of China’s agricultural futures market. In 2020, the average daily trading volume of RBD palm olein futures on DCE stood at 1.3 million lots, equivalent to 13 million tons; the average daily open interests were 510,000 lots, equivalent to 5.1 million tons. DCE’s RBD palm olein futures trading volume ranks second in the global agricultural futures and options market. On December 22, 2020, overseas investors were allowed to trade RBD palm olein futures, with its international influence ever expanding.
It is learned that the correlation coefficient of RBD palm olein futures and spot prices in China is 0.99. In particular, 70% of domestic palm oil spot trades adopt DCE’s RBD palm olein futures prices for basis pricing, and RBD palm olein futures has become the pricing benchmark for spot trade and has a profound influence on international market pricing. China’s domestic palm oil-related large oil companies and multinational grain and oil companies operating in China have made the most of RBD palm olein futures to deal in hedging transactions, and more than 85% of China’s palm oil imports are carried out by those companies that use RBD palm olein futures for hedging. RBD palm olein futures has become an indispensable risk management tool for these companies. China’s RBD palm olein futures and spot markets of palm oil varieties have good linkages with the international market. With the increasing internationalization of RBD palm olein futures, the industry urgently needs the RBD palm olein options which is opened up to overseas investors as an risk management tool .
According to market participants, the listing of RBD palm olein options and the opening up to overseas investors is another important measure for China’s futures market to further improve its market system and serve the global industry. It can help China’s futures market consolidate the opening-up achievements, enhance its global pricing capability and further raise its ability and level in serving the global industrial chain.
For the industry, the listing of RBD palm olein options and the opening up to overseas investors can create a synergy with RBD palm olein futures, so as to further enrich the market’s risk management methods, better meet the risk management needs of domestic and foreign palm oil production, processing and trading companies, and contribute to the Belt and Road Initiative industrial cooperation. As for the futures market, a complete system of risk management tools will help improve the quality of market operations, optimize market structure, further enhance the international pricing capabilities of palm oil futures and promote the RMB internationalization.
Since soybean meal options was launched in March 2017, DCE has successively listed seven options. The market has been operating smoothly with the liquidity being gradually improved. Both the rules and the technical system have fully stood the test of the market. Based on the thorough research on domestic and foreign markets as well as the market feedback from all players, RBD palm olein options contract and the measures for management of options trading have been formulated and widely recognized by the market. At present, DCE is steadily advancing the listing of RBD palm olein options and opening up to overseas investors, striving for the smooth listing and steady operation of the options.
