Futures crude palm oil (FCPO) for August 2014 contracted as its benchmark contract fell for its third straight week; settling at 2,414 which was down nine points or 0.37 per cent from 2,423 last Friday due to stronger ringgit, weaker soyoil markets and the possibility of bigger stockpiles.
Meanwhile, trading volume increased to 185,232 contracts from 173,997 contracts totalled last week. However, open interest based on Thursday decreased to 177,857 contracts from 182,609 contracts last Thursday.
Intertek Testing Services (ITS) reported on Monday that there was an increase of 7.8 per cent for the first 31 days of May to 1.316 million tonnes compared to April’s first 30 days at 1.221 million tonnes. Similarly, Société Générale de Surveillance (SGS) reported an increase in export for the first 31 days at 1.329 million tonnes compared to April’s first 30 days at 1.221 million tonnes.
Despite the robust export figures, FCPO was mostly down throughout the week due to investors’ sentiments on the possible lacklustre increase in export which is expected to be good enough to offset the coming production and end stock.
Moreover, weakness in CBOT soybean oil due to poor demand and huge supplies also pressured the FCPO market. Spot ringgit strengthened for the week to 3.212 where the lowest it hit was on Friday; at 3.21. Initially, earlier during the week, ringgit weakened which was in tandem with most Asian currencies.
However, it strengthened due to speculation of more inflow to country after the European Central Bank announced a rate cut to increase lending.
Malaysia’s exports in April rose by a robust 18.9 per cent from a year earlier, which was higher than expected and it had pushed ringgit to strengthen even further.
Investors are waiting for the upcoming Malaysian Palm Oil Board report where the market expects palm oil stocks to rise 2.4 per cent to 1.808 million tonnes while production to increase 7.1 per cent to 1.667 million tonnes. Meanwhile, export is expected to rise eight per cent to 1.362 million tonnes.
Most traders and investors are weighing on the strength of ringgit which might force many buying interest to stay on the side lines until they can see fresh strong export reports in the month of June as many fear that demand in the month of May may not catch up with the rise in inventory and production.
In addition, the market also took note of a bigger possibility of an upcoming El Nino weather phenomenon where many are still gauging its intensity although crop damage is still expected to be minimal for this year.
It is expected that extreme dry weather will damage growth of fresh fruit and dent palm yields several months later which could potentially cause prices to spike in the coming year.
Technical View
Based on the chart, price fell below the horizontal line (red line) where since then price fell to as low as 2,375. It also covered the gap between October 18 and 21, 2013 (2,404 to 2,418). Price managed to bounce up from a low although selling pressure remained throughout the week.
Despite the price breaking past our key support level which we drew in the chart, we do expect the downfall to be limited due to several fundamental factors.
However, based on our analysis, price may consolidate for the time being albeit bias to the negative side. For market to bounce up further, it needs to break the previous high level at 2,450.
However, should the weakness persist, support level at 2,375 will be monitored. Current EMA 60 day level is pegged at 2,572. Current EMA 100 day level is pegged at 2,588. Current EMA 200 day level is pegged at 2,571. Key support levels are placed at 2,395, 2,375 and 2,330. Key resistance levels are placed at 2,450, 2,485 and 2,520.
Major fundamental news this coming week
MPOB report, ITS and SGS report on June 10 (Tuesday).
Oriental Pacific Futures (OPF) is a Trading Participant and Clearing Participant of Bursa Malaysia Derivatives. You may reach us 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.