FCPO Daily Chart Source: OPF Charting System
Crude palm oil futures (FCPO) on Bursa Malaysia Derivatives ended the week sharply higher due to short covering activities ahead of the long weekend and unfavourable weather to palm oil production in Southeast Asian.
The benchmark FCPO March contract jumped RM186 or 6.23 per cent to close at RM3,170 per tonne on Friday from RM2,984 per tonne last Friday.
The trading range for the week was from RM2,984 to RM3,178.
Total volume traded for the week amounted to 99,977 contracts, down 2,461 contracts from the previous week.
The open interest as at Thursday decreased to 111,428 contracts from 117,601 contracts the previous Thursday.
This week, traders were pushed to cover their short positions ahead of long holidays next week as the open interest was further down compared with last week.
The persistent heavy rains in Southeast Asian and dry weather in South American had contributed to the rise of both palm oil and soybean oil prices.
The heavy rains in Southeast Asia were slowing down the palm oil harvesting and disrupted the transportation of the fresh fruit bunches to the mill.
The palm oil production in December was expected to decline 15 to 20 per cent due to unfavourable weather.
On the other hand, the drier weather in South American could cause heat stress and reduce the much-needed moisture for soybean crop in the field.
This would bring down the yield of soybean crop.
Even though there were some relief rains in Argentina and Brazil for the past few days, the rains were shortcoming and heat would be expected to return next week.
In addition, the positive economic data from Germany and US also temporary eased the worries over the eurozone debt crisis. However, the palm oil demand was also lower which would relieve the palm oil tight supply condition.
Cargo surveyor ITS released the palm oil export figures for the period of December 1 to 20 on Tuesday at 933,553 tonnes, a drop of 10.06 per cent while another surveyor SGS at 924,811 tonnes, a decrease of 10.48 per cent from the same period last month.
The Malaysian Meteorological Department upgraded from a yellow stage to an orange stage warning on Thursday that heavy rains were expected to fall in few areas in Johor until December 24.
This might cause floods in low lying areas. The meteorological department also issued yellow stage warning that intermittent rain would occur in few key palm oil producing states including Pahang, Johor, Sarawak and Sabah next week.
The four states combined produced more than 70 per cent of the total palm oil production in Malaysia. Malaysian market will be closed on Monday celebrating Christmas day.
Technical View
The descending wedge resistance was broken on Wednesday, much earlier than our expectation due to the fear of bad weather which could reduce the palm oil production drastically.
This powerful breakup resumed the current uptrend. The market is expected to trade in thin volume next week due to holiday season.
Resistance would be pegged at RM3,270 while support was set at RM3,080 and RM3,000.
Major fundamental news this coming week
Malaysian export data for Dec 1-25 by ITS and SGS on December 27 and the export data for full month of December by ITS on December 31.
Oriental Pacific Futures is a Trading Participant and Clearing Participant of Bursa Malaysia Derivatives. They can be reached at www.opf.com.my. Disclaimer: This article is written for general information only. The writers, publishers and OPF will not be held liable for any damage or trading losses that result from the use of this article.