Crude palm oil futures (FCPO) on Bursa Malaysia Derivatives ended the week lower due to lacklustre in palm oil exports, the strengthening in ringgit and favourable weather condition in South America.
The benchmark FCPO April contract fell RM50 or 1.59 per cent to close at RM3,085 per tonne on Friday from RM3,135 per tonne last Friday.
The trading range for the week was from RM3,036 to RM3,126. Total volume traded for the week amounted to 83,636 contracts, up 40,128 contracts from the previous week. The open interest as at Thursday increased to 111,281 contracts from 108,690 contracts the previous Thursday.
Cargo surveyor ITS released the palm oil export figures for the period of January 1 to 31 on Tuesday at 1,315,323 tonnes, a drop of 11.91 per cent while another surveyor SGS at 1,293,078 tonnes, a decrease of 13.02 per cent from the same period last month.
The cut in export tax by the Indonesian government in August last year gave a significant impact to the refiners and exporters in Malaysia.
The Star reported on Friday that the Malaysian government would restructure its crude palm oil export tax and setup an Industry Adjustment Fund (IAF) of RM1 billion to assist the local refining industry.
The new fund would be generated from a new cess to be collected from the producers. According to the report, the Malaysian government also proposed a Fallback Plan for the industry where some of the measures included were to maintain the current export duty on crude palm oil (CPO) but would scrap its duty-free export quota.
They also provide assistance to smallholders to offset any decline in fresh fruit bunches (FFB) price. All these measures were to help the palm oil industry in Malaysia to counter the effect of the cut in Indonesian palm oil export tax.
In addition, the Pakistan government was also signing a preferential trade agreement (PTA) with Indonesia on Friday to lower its import duty on crude palm oil by 15 per cent which would be the same level as Malaysia currently.
The Malaysian government had signed the same PTA with Pakistan since 2007 which enabled the Malaysian exporters to enjoy the advantage in the lower import duty and increased a substantial market share in Pakistan since then.
With the new PTA between Pakistan and Indonesia in place, this would give another impact to the Malaysian palm oil exporters.
Meanwhile, rains were expected to cover most of the crop areas in both Argentina and Brazil for these two weeks, easing the crop stress in both countries caused by prolonged drought for the past three months.
Malaysian market will be closed on Monday and Tuesday celebrating the birthday of Prophet Muhammad and Thaipusam respectively.
Technical View
The benchmark April contract remained trading in a wide range of RM3,000 to RM3,300.
The market seemed to be forming a downtrend channel where we expect to see a small price rebound next week before coming down again. Resistance would be pegged at RM3,150 and RM3,270 while support was set at RM3,000.
Major fundamental news this coming week
USDA’s monthly supply-demand report on February 9, MPOB’s monthly supply-demand report on February 10 and Malaysian export data for Feb 1-10 by ITS and SGS on February 10.
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.