By Song Hongmei (chinadaily.com.cn)
Updated: 2007-10-09 15:51

The Dalian Commodity Exchange (DCE) was given the go-ahead from China's securities regulator to launch palm oil futures, the International Financial News reported today.

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It will mark the fourth commodity futures contract launched this year on domestic markets after zinc, rapeseed oil and linear low density polyethene (LLDPE) futures.

The China Securities Regulatory Commission said DCE has completed the necessary preparations, the report said.

The report cited a source close to DCE who said the futures contracts are to begin trading this month. It will be the second commodity futures product introduced by DCE this year. Trading in LLDPE, a primary plastic raw material, began on July 31.

Palm oil is a key ingredient in many processed food products, including instant noodles and biscuits. China is a major importer, and demand there is growing rapidly as a result of expansions in the country's food processing industry.

In 2006, China imported 514 million tons of palm oil, an increase of 18.7 percent from the year before, accounting for 18.4 percent of global trading.

With the domestic food industry growing rapidly, palm oil demand is expected to continue rising. Industry insiders predicted China's palm oil imports will top 600 million in 2008.

Palm oil has led the price surge in edible oil products this year. Statistics show the price of palm oil in the domestic market in the first six months of this year jumped by more than 50 percent to 8,150 yuan ($1,083.8) per ton from the same period the year before.

The price fluctuation was a bounce from previous falls. The price of palm oil rose to 6,307 yuan per ton in October 2003 from 3,390 yuan in October 2001, but dropped to 4,195 yuan in February 2005 due to market supply, exchange rates, and prices of its substitutes.

Analysts say the introduction of palm oil futures could be a timely tool for traders and industrial users to hedge risks, as the import of palm oil is expected to rise in the country.

China currently has three futures exchanges - the Shanghai Futures Exchange, Zhengzhou Commodity Exchange and DCE.

DCE, the largest agricultural commodities futures exchange in the country, already trades corn, soybeans, soy meal and soy oil futures.