Palm oil is a type of fatty vegetable oil. It is a product of the oil palm tree, and is attained by processing the flesh and kernel of the tree’s fruit. This fruit is red in colour, and each one contains a single seeded kernel. The tree itself thrives in tropical climates, is abundant on the coastal areas of Africa and grows to roughly 20 metres in height. For commercial use, palm oil plants are generally grown in a nursery for around 1 – 1.5 years, and are subsequently planted in fields, producing a yield of fruit around 30 months later. The adult trees produce around 10 to 15 bunches a year. Each plantation can therefore yield around four tons of palm oil a year from the processed fruit. Once the palm oil is extracted from the fruit, it is refined, bleached and deodorised, and sometimes then split chemically into palm olein and palm stearin. This greatly increases the possible commercial applications of the product.
Palm oil has several features that make it attractive to traders participating in commodity trading. It is a very stable substance, even in relatively extreme temperatures, and so has applications in food production, often being used in frying. Palm oil prices and attributes mean it is also a good substitute for the more expensive cocoa butter. It is also the primary exported vegetable oil, with around 80% of palm oil worldwide imported into the primary consumer countries. This obviously makes trading palm oil futures a potentially lucrative undertaking.
Palm oil futures are traded first and foremost on the Bursa Malaysian Derivatives exchange (BMD) under the contract codes FCPO (Crude Palm Oil Futures), FUPO (USD Crude Palm Oil Futures) and FPKO (Crude Palm Kernel Oil Futures). They are also traded on other exchanges, for instance the Multi Commodity Exchange of India (MCX) where it is traded on the futures market under the ticker symbol of CPO.
The main consumer and business market for the palm oil commodity is the food industry, with palm oil trading forming an essential part of the operations of many large foodstuff producing corporations. China is the largest importer of palm oil, importing around 4 and a half million tonnes each year. The European Union trails only slightly behind this, with almost 4 millions tonnes imported per year. China is also the leading consumer of palm oil worldwide. Palm oil’s high level of availability due to the cheapness of palm oil production and its low price make it a significant competitor in the edible vegetable oil market. It is the cheapest commercial vegetable oil available and is also the cheapest of the oils to produce. It also has industrial applications, and it is believed that palm oil biodiesel, produced from refined palm oil, will become one of this century’s most important commodities.
For those wishing to buy palm oil or trade in palm oil futures there are several factors to consider: palm oil prices can fluctuate, so it is important to pay attention to as many of these factors as possible if trading palm oil. The price and demand of competing vegetable oils can obviously affect the price of palm oil futures, and the spot price of palm oil can be affected by changes in the weather, which always has a bearing the price of agricultural commodities. The import policies and laws of various countries where palm oil production takes place can also change periodically, and this too can affect the price of palm oil futures. It is recommended that any person or company wishing to commence trading palm oil pay study the various factors affecting palm oil prices before commencing.
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