Crude Palm Oil Weekly Report – July 6, 2014

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Malaysian palm oil futures edged down for the week on Friday which was one of their biggest weekly drop as strength in ringgit curbed buying interest.

Futures crude palm oil (FCPO) benchmark for September 2014 contract settled at 2,402; which was down 43 points or 1.76 per cent from last Friday’s 2,445.

Trading volume increased to 201,927 contracts from 182,597 contracts totalled last week. However, open interest based on Thursday increased to 215,052 contracts from 192,700 contracts last Thursday.

Intertek Testing Services (ITS) reported on last Monday an increase of 5.8 per cent for the first 30 days of June to 1.391 million tonnes compared to May’s first 31 days at 1.316 million tonnes. Société Générale de Surveillance (SGS) also reported an increase of 4.6 per cent to 1.39 million tonnes for the first 31 days of June compared to last month at 1.329 million tonnes.

Despite the rise in export demand from countries like India and EU nations, FCPO’s gain was still capped by weakness in CBOT soybean oil and strong ringgit which kept buyers from supporting the market.

Spot ringgit strengthened for the week to 3.1845 compared to last week at 3.211, in tandem with most emerging Asian currencies as strong US job data had increased the appetite for risk assets which overshadowed the worries that US Federal Reserve might start raising interest rates.

Moreover, investors also expect inflows brought on by 1Malaysia Development Bhd’s plan to raise more than US$3 billion through a stock market listing of its energy assets.

Investors are also focused on the monetary policy decision on July 10 as the Malaysia’s central bank had indicated that it might need to tighten monetary policy to counter accumulated financial imbalances.

Market was mostly side-ways throughout the week as traders were mostly undecided by a mixed bag of positive and negative news. On one side, some believed that there is a possibility of lower inventory due to improved demand. However, ringgit and weakness in soybean oil had capped the price from further gain.

Production is expected to fall 0.4 per cent to 1.65 million while stock is expected to reach 1.8 million. Export is expected to rise 3.2 per cent to 1.45 million. Most market players also take note of the potential curb in production as plantation workers take leave for the Eid al-Fitr celebration.

They are also watching for signs of the incoming drought which resembles the El Nino weather pattern which might interrupt the formation of palm fruit and its yield.

According to the World Meteorological Organisation, there is a 60 per cent chance of El Nino conditions becoming fully established between June and August and a 75 to 80 per cent chance in October to December. The UN agency said this year’s El Nino would likely dissipate after the first few months of 2015.

 

Technical view  

Based on the chart, price was pressured to as low as 2,385 before it managed to bounced to as high as 2,436. However, price was then capped at the end of the week to as low as 2,399. Based on our observation from the previous week, we still believe price may still be in consolidation mode.

We drew the line (light green) in the chart so that traders are able to monitor or anticipate a possible bounce from the line.

Should price bounce up, we are looking at whether it will rise above the 2,436 price level target which was our 50 per cent Fibonacci retracement target based on our previous week commentary  Meanwhile, similar to last week, we observe the EMA 100 and EMA 200 lines. The EMA 100 had crossed below the EMA 200 line which to many; is called the ‘death cross’ which can be a ‘sell sign’.

However, due to its lagging nature, we suggest investors to pay attention in the coming weeks especially FCPO volume, rather than to see it as the determinant to decide the position inside the market. Current EMA 60 day, 100 day, and 200 day levels are pegged at 2,506, 2,538, and 2,546. Key support levels are pegged at 2,385, 2,360 and 2,330.

Key resistance levels are derived at 2,436, 2,455 and 2,515-20.

 

Major fundamental news this coming week

MPOB, ITS and SGS report on June 10 (Thursday).

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.