Reuters Italia – After taking huge bets on industrial commodities, hedge funds are now angling to reap returns on Malaysia’s newly trendy palm oil market.
As the world’s appetite for green fuels grows, the volatility in palm oil prices is increasingly drawing hedge funds to a market which they once shunned.
Biofuel plants are sprouting at a dizzying pace as nations from Europe to Asia seek ways to cut dependence on soaring crude oil, curb greenhouse gas emissions and boost agriculture. Oil has rallied 25 percent this year on supply worries.
And with demand from the food sector for palm oil also growing sharply, the Malaysian market in coming months will likely see more demand from hedge funds — which like to make money when markets post wild swings in either direction.
“Funds have never been active in this market because there was nothing to really trigger prices,” said an analyst with CIMB Securities. “But now the situation is changing.”
Prices have been swinging widely in recent weeks on the market known as the Bursa Malaysia Derivatives, which has been reacting to news on the growing demand for biofuels.
Malaysian palm oil surged 3 percent in a few hours of trading on one day last month when Malaysia and Indonesia announced that that in the future they would pledge 40 percent of their output to make biodiesel.
Since then, daily volumes have nearly doubled, with open interest on certain days climbing to as high as 60,000 lots of 25 tonnes each.
Palm oil prices have risen about 13 percent so far this year. On Tuesday, the benchmark October contract was trading at around 1,632 ringgit a tonne, or $445.
