Crude palm oil futures (FCPO) on Bursa Malaysia Derivatives ended the week sharply lower due to broad-based selling in all commodities and the increased worries about the health of the global economy.
The benchmark FCPO December contract tumbled RM86 or 2.79 per cent to close at RM2,992 per tonne on Friday from RM3,078 per tonne last Friday. The trading range for the week was from RM2,951 to RM3,071.
Total volume traded for the week amounted to 98,376 contracts, up 6,991 contracts from the previous week. The open interest as at Thursday decreased to 135,326 contracts from 138,678 contracts the previous Thursday.
Global equities and commodities fell for the whole week as the increased fears among investors over Europe’s inability to solve the eurozone debt crisis.
This led to the substantial increase in US dollar which pressured commodities in general.
The widely anticipated US Federal Reserve announcement on Wednesday to sell US$400 billion of US short-term debt and to buy the same amount of US long-term bonds failed to provide much support to the overall weak sentiment.
Moreover, palm oil production was expected to increase in September as workers came back to the field after long holidays during Hari Raya.
If the palm oil export was unable to outpace the growth in production, this would push the stocks back to above two million tonnes which would weigh on palm oil prices.
However, traders expected buying interests from India and China to come in ahead of the Golden Week holidays in China and Deepavali festival in India next month.
Weakness in the Malaysian ringgit was another factor in slowing down the drop in palm oil prices as it was relatively cheaper in value to the local refiners to purchase the raw materials. Cargo surveyor, ITS, released the palm oil export figures for the period of September 1 to 20 on Tuesday at 978,087 tonnes, a decrease of 16.42 per cent while another surveyor, SGS, at 967,859 tonnes, a drop of 17.37 per cent from the same period last month.
India’s edible oils association urged the government to raise import duties on refined palm oil to protect the local refining industries after the announcement of Indonesian government to reduce the export tax of its refined palm oil.
Malaysian refiners association also approached the government to work out the palm oil export structure to counter the effect of the Indonesian government’s move.
Technical View
Palm oil prices were resilient to the external weakness earlier in the week but were unable to withstand the pressure from the plunge in the global vegetable oils’ prices later of the week.
CBOT soyoil plunged 422 points or 7.42 per cent, DCE soyoil tumbled 628 yuan or 6.16 per cent and DCE palm oil dived 542 yuan or 6.14 per cent for the week.
The benchmark December contract broke and closed below RM3,000 support level on Friday, signaling the selling pressure remained.
In addition, the inability to break above EMA 50 resistance during the week showed the weakness persisted. Medium term outlook remained neutral as long as the prices stayed in the range of RM2,917 to RM3,150.
Any breakout from this range would signal a new trend in the long term. Resistance will be pegged at RM3,076 and RM3,150 while support is set at RM2,917.
Major fundamental news this coming week
Malaysian export data for September 1 to 25 by ITS and SGS on September 26, Globoil conference in India on September 23 to 25.
Oriental Pacific Futures (OPF) is a Trading Participant and Clearing Participant of Bursa Malaysia Derivatives.
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