Palm oil settled higher for the week on Friday after a few weeks of decline as it was supported by strong crude oil prices, the seasonal celebration demand and an upcoming potential El Nino weather pattern.
Futures Crude Palm Oil (FCPO) for August 2014 had contract as its benchmark contract settled at 2,427 which was up 13 points or 0.54 per cent from 2,414 last Friday. Trading volume decreased to 163,112 contracts from 185,232 contracts totalled last week. Additionally, open interest based on Thursday decreased to 173,321 contracts from 177,857 contracts last Thursday.
MPOB reported last Tuesday, that production increased 6.5 per cent to 1.66 million tonnes which was lower than the expected figure at 1.67 million tonnes. End-stocks or inventory increased 4.2 per cent to 1.84 million tonnes which was higher than the expected figure at 1.81 million tonnes.
Meanwhile, export increased 10.7 per cent to 1.4 million tonnes from 1.36 million tonnes, which was higher than expected. ITS reported that there was a decrease of 0.3 per cent for the first 10 days of June to 390,729 tonnes compared to May’s first 10 days at 391,856 tonnes. SGS is expected to report its figure on June 16.
Spot ringgit weakened for the week to 3.217 although the lowest it strengthened to was on Monday at 3.1965. Earlier during the week, ringgit strengthened due to emerging Asian currencies.
Meanwhile, Malaysia’s Prime Minister Datuk Seri Najib Tun Razak had announced steps to liberalise the country’s financial sector such as removing barriers faced by foreign-owned fund managers and easing ratings requirements for the corporate bond market. Such action strengthened ringgits as it encouraged more demand for Malaysian ringgit. However, ringgit had weakened throughout the remaining of the week as poor data from April Industrial production dampened interest to hold ringgit. The weakening of ringgit was one of the reasons FCPO traded higher especially on Friday. Earlier during the week, FCPO was pressured to as low as 2,362 due to mixed results from MPOB and forecast of bumper soybean crop which threatened potential huge supplies from both sides. However, huge spike in NYMEX crude oil futures due to the Iraq militant crisis pushed FCPO above 2,400 level as it has made palm a more attractive feedstock to produce biodiesel.
The spike also pushed up CBOT soybean oil futures which is a rival to palm oil and normally, highly traded soybean oil will also lend support to FCPO.
Malaysian ringgit, which weakened throughout the week, also lent support in demand which will push FCPO price up. On Tuesday, Japan weather’s bureau reported that the emergence of El Nino weather pattern is getting closer and one could emerge this summer and last at least until autumn.
Shuhei Maeda, senior coordinator for El Nino information at the Japan Meteorological Agency believed a prediction of when the phenomenon may be possible by early July.
El Nino weather pattern is often linked to heavy rainfall and droughts in different parts of the world. It can trigger drought in Southeast Asia and Australia while floods in South America; hitting production of key commodities such as rice, wheat, sugar and many more.
Technical view
Based on the chart, price fell until 2,362 on Thursday before it bounced up to close higher on Friday. From the chart, price managed to find support at the 2,360 level and we still believe that price may still continue its consolidation phase probably until the end of June as traders are waiting for more data and expectations to guide their action.
Meanwhile, there is a possibility that that market is now staging a rebound after a big correction at 2,900 level onwards as sellers are getting exhausted. However, two conditions need to be met where it must not break the 2,360 level and in the coming days, it needs to break above the 2,450 level.
Current EMA 60, 100, and 200 day level are pegged at 2,546, 2,71, and 2,562 respectively.
Key support levels are placed at 2,395, 2,360 and 2,330 while key resistance levels are at 2,450, 2,500 and 2,515.
Major fundamental news this coming week
ITS and SGS report on June 16 (Monday).
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.