Bursa Malaysia will be launching a new crude palm oil (CPO) futures contract specific to East Malaysia on Monday 4th October at 9 am SG/MY time. The contract known as FEPO will offer new pricing discovery for CPO originating from the states of Sabah and Sarawak which contribute half of Malaysian CPO and have long complained that the more established FCPO benchmark contract disadvantages them since pricing is based on infrastructural factors and delivery points in Peninsular Malaysia. The pricing can be very different if the cargo originates from Port Klang in the peninsular or Lahad Datu in the East Malaysian state of Sabah. The FEPO (East Malaysian Palm Oil Futures) contract aims to provide a rebalance, allowing for a refined price discovery mechanism and options for physical delivery for in Sabah and Sarawak. FEPO is expected to trade at a premium to FCPO given the higher logistical cost than in peninsular Malaysia. According to Bursa Malaysia, the FEPO mirrors almost all of the FCPO’s current specifications, with some enhancements specific to East Malaysia offering delivery through 3 ports. They are Sandakan, Lahad Datu and Bintulu. Sandakan and Lahad Datu accounted for 10.57% and 12.37% respectively of total export volume in 2020—MPOB data showed. There was no data available for Bintulu. China makes up the main export destination for vessels plying from East Malaysia to the tune of 31% followed by India 13% in 2020.
The launch of FEPO should rectify complaints that East Malaysian palm oil is sold at a discount to FCPO while incurring higher freight costs due to the larger distance, resulting in the Sarawak Oil Palm Plantation Owners Association estimating that the 2 states lose some RM1 billion (US$241.7 million) annually due to price differentials.