Malaysian palm oil futures edged lower on Friday to 2,227, the lowest since December, due to worries over the global economy. However, the easing of the monsoon weather had limit losses.
Futures Crude Palm Oil (FCPO) benchmark for April 2015 contracts settled at 2,227, down 84 points or 3.8 per cent from 2,311 last Friday.
Trading volume decreased to 204,163 contracts from 234,195 contracts from last Monday to Thursday.
Open interest based on increased to 709,736 contracts from 701,908 contracts from last Monday to Thursday.
Cargo surveyor, Intertek Testing Services (ITS) reported that exports of Malaysia’s palm oil products during January 1 to 20 decreased 22.9 per cent to 702,581 tonnes compared with 911,595 tonnes during December 1 to 20.
In a separate report, Societe Generale de Surveillance (SGS) stated that Malaysia’s palm oil exports during January 1 to 20 decreased 21.8 per cent to 709,370 tonnes compared with 906,594 tonnes during December 1 to 20.
Overall, demand from the European Union (EU), China, India and the US decreased.
Spot ringgit weakened on Friday to 3.6, due to the European Central Bank (ECB) introducing a massive quantitative easing programme.
According to report released by the Malaysian Palm Oil Board (MPOB), palm oil futures prices could be volatile during the first half of this year due to the uncertainties in the global economy.
They predicted that this year, the price could drop as low as RM1,820, if reached, would be the lowest since February 2009, and as high as RM2,750. They expect output to rise to 20.09 million tonnes, which is lower than the earlier prediction of 20.5 million tonnes. They also predict overseas exports would increase to 25.77 million tonnes from 25.02 million in 2014.
According to Reuters, officials had mentioned in a recent conference that droughts in Malaysia and Indonesia, or the El Nino effect, which could damage crops, looks unlikely to reach harmful levels when compared to the previous year. Therefore, this phenomenon will not harm output as much as last year.
On Monday, the price rose initially, as the continuing wet weather increased expectations that output this month could be lower than predicted.
However, by the later session, gains were lost as the price fell due to anxiety over demand from India and China, coupled with concerns over an uninspiring global economic outlook weakened prices.
On Tuesday, the price initially fell, due to poor export data. However, by the afternoon session the price rose, recovering early losses, as the ringgit weakened to a six-year low. On Wednesday to Friday, the price fell as worries over monsoon weather eased.
This was paired with technical selling, and global market uncertainties which weakened demand. However, the price was supported, due to recovering crude oil prices, coupled with a weakening ringgit.
Technical analysis
According to the weekly FCPO chart, the price continued to bounce the top Bollinger band, falling towards the middle Bollinger band at 2,200.
According to the daily FCPO chart, on Monday, the price fell slightly lower, as the price fell towards the middle Bollinger band.
On Tuesday, the price initially fell, testing psychological barrier at 2,300 and the middle Bollinger band. However, by the end of the day, the price recovered earlier losses and closed above, bouncing above the middle Bollinger band.
On Wednesday, the price rose initially. During the afternoon session, the price fell, breaking and closing below psychological level of 2300 and the middle Bollinger band.
On Thursday, the price continued to fall, targeting the bottom Bollinger band, while breaking and closing below the support line of 2,260.
On Friday the price fell, towards the bottom Bollinger band.
In the coming week, the price could potentially range at 2,200 to 2,300.
Resistance lines will be placed at 2,290 and 2,350, while support lines will be positioned at 2,190 and 2,150, these will be observed in the coming week.
Major fundamental news this coming week
ITS and SGS report on January 26 (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.