Crude palm oil futures (FCPO) on Bursa Malaysia Derivatives ended the week higher due to weather concern in Malaysia which could further reduce the palm oil production in coming months.
The benchmark FCPO March contract increased RM36 or 1.13 per cent to close at RM3,211 per tonne on Friday from RM3,175 per tonne last Friday.
The trading range for the week was from RM3,176 to RM3,244. Total volume traded for the week amounted to 74,677 contracts, up 6,286 contracts from the previous week.
The open interest as at Thursday increased to 114,558 contracts from 113,036 contracts the previous Thursday. 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 Sarawak until January 7.
The heavy rains and high tide phenomenon would cause flood in low lying areas. Some areas in Sarawak would encounter strong winds and flash floods.
The meteorological department also issued yellow stage warning that intermittent rain would occur in few key palm oil producing states including Sabah, Pahang and Johor until January 9.
This would cause floods in low lying areas. The four states combined produced more than 70 per cent of the total palm oil production in Malaysia.
A Reuters poll revealed on Wednesday that Malaysian palm oil stocks were likely to fall further in December from the previous month as the drop in production outpaced the decrease in export demand.
According to the poll, palm oil stocks in December were expected to reduce 5.7 per cent to 1.95 million tonnes while production would fall 13.9 per cent to 1.4 million tonnes. Exports were estimated to decline 9.7 per cent to 1.5 million tonnes.
Weather forecast revealed that rains would fall in Brazil and Argentina next week which would bring relief to the drought condition in both countries’ grain areas. However, dry conditions were expected to return after January 15.
The eurozone debt worries resurfaced this week with the fears of France credit ratings could be downgraded soon. This had pushed the US dollar higher which capped the further increase in grain prices.
Cargo surveyor ITS released the palm oil export figures for the full month of December last Saturday at 1,493,128 tonnes, a drop of 2.6 per cent while another surveyor SGS released its exports data on Tuesday at 1,486,574 tonnes, a decrease of 3.32 per cent from the same period last month.
Technical View
The benchmark March contract was unable to break further high this week. Hence, the palm oil price was expecting profit taking activities this week due to rain forecast in South American.
If the market was strong enough, it should be able to hold above RM3,164. If the price managed to break lower than RM3,164, more long liquidations would be expected and it may tend to cover the gap at RM3,097-RM3,112.
Resistance would be pegged at RM3,270 while support was set at RM3,080 and RM3,000.
Major fundamental news this coming week
MPOB’s monthly supply-demand report on January 10, Malaysian export data for Jan 1-10 by ITS and SGS on January 10 and USDA’s monthly supply-demand report on January 12.
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.