The Thailand Futures Exchange (TFEX) will hold talks with the Bank of Thailand next week to seek approval for trading in rubber futures quoted in US dollars. The move is aimed at enhancing the competitiveness of such instruments.
The rubber futures product on the TFEX is ribbed smoked sheet (RSS3).
Bundit Kerdvongbundit, vice-president of Von Bundit Co Ltd, an exporter of natural rubber, said RSS3 futures contracts have been trading on the Shanghai Futures Exchange (SHFE), the Singapore Commodity Exchange (SICOM) and the Tokyo Commodity Exchange (TOCOM), adding these three markets have the most active trading volume for rubber globally.
The SHFE uses the yuan to trade RSS3 futures, while the same product is quoted in dollars on the SICOM and yen on the TOCOM.
Active trading of RSS3 futures in the three regional markets has been attributed to how the product is quoted in major currencies, together with high demand and supply available, said Mr Bundit.
RSS3 was traded on the Agricultural Futures Exchange of Thailand (AFET) for 10 years. Average trading was 200-300 contracts a day, peaking at 800.
After the AFET merged with the TFEX two years ago, the TFEX opened trading for RSS3D as the first agricultural product traded on the exchange. But trading volume was slim at 50-70 contracts a day. The merger also caused the AFET broker to close their operations due to a loss in profit as rubber futures trading was not active.
"If the TFEX can change [the settlement price] of RSS3D futures from the baht to the dollar, I believe that trading liquidity will increase, [which will subsequently lend support to] trading demand for rubber futures," said Mr Bundit.
Natural rubber exporters and the TFEX will meet with the central bank to propose the idea next week, he said.
Mr Bundit said the central bank's concern is related to currency fluctuations if futures trading is allowed to be quoted in the local currency. But the RSS3D future is a specific agricultural product, for which demand and supply will control market prices.
This is different compared with gold and oil, where currency fluctuations can be affected by uncontrollable factors if settlement in the greenback is allowed, he said.
"But we cannot predict if the central bank will allow [dollar settlement] only for RSS3D futures or for other commodities as well," said Mr Bundit. "We think RSS3D has slim trading volume at the moment, and the central bank can easily follow currency fluctuations and fund flows."
He said natural rubber prices are forecast to rise in March due to lower supply during the summer season and decreased stocks among users.
Titus Suksaard, governor of the Rubber Authority of Thailand, said the organisation has set up a fund for buying rubber domestically, both for the spot and futures markets. There has also been a cooperation with Malaysia and Indonesia to adopt a regional rubber market in each country.
The authority is studying "the possibility of regional rubber trading in the dollar, which can support Thailand's rubber price on a global level", said Mr Titus.
TFEX managing director Rinjai Chakornpipat said the exchange is intended to increase futures trading by 10-15% from 324,217 contracts per day in 2017, drawing 10,000 new investor accounts annually.
Trading on the TFEX increased to 400,000 contracts per day during January and February. The most active products were stock single futures at 50%.
RSS3D futures have been trading on the TFEX since the end of 2016, but volume remains slim. It is hoped that RSS3D futures trading will reach more than 100 contracts per day this year, said Ms Rinjai.
The TFEX yesterday signed a memorandum of understanding with three natural rubber exporters and five brokerage firms to cooperate and support RSS3D futures trading and physical delivery. Normally, RSS3D futures trading is settled by cash and around 1% is settled with physical delivery.