Malaysian palm oil futures dropped this week after hitting a four-month high, weighed down by expectations of rising production in the coming months and tracking weaker performances in related edible oils.
The benchmark crude palm oil futures (FCPO) contracted downwards 1.77 per cent to RM2,606 on Friday, which was RM47 lower than RM2,653 during the previous week.
The total trading volume from Monday to Thursday declined 8.08 per cent with 182,098 contracts traded, compared with 198,104 contracts traded during last Monday to Thursday.
Total open interest from Monday to Thursday dropped 3.53 per cent to 828,956 contracts from 859,305 contracts during last Monday to Thursday.
Intertek Testing Services (ITS) reported that export of Malaysian palm oil products for July 1 to 30 rose 4.1 per cent to 1.239 million tonnes, from 1.19 million tonnes shipped during June 1 to 30.
Societe Generale de Surveillance (SGS) reported that exports of Malaysian palm oil products during July 1 to 30 rose 4.11 per cent to 1.26 million tonnes from 1.21 million tonnes shipped during June 1 to 30.
Cargo surveyors ITS and SGS reported gains in the July shipments from Malaysia and showed a rise in demand from China and Europe.
China bought 12 cargoes of palm oil in the last seven days, according to China National Grain and Oils Information Center (CNGOIC) report on Thursday, totalling up to 120,000 tonnes for shipment in the fourth quarter of the year.
However, inventories and output for July are expected to rise in line with the seasonal trend.
Production gains in the east Malaysian state of Sabah, the country’s largest producing region, is seen rebounding the most on a post-El Nino recovery compared with other states.
According to a Reuters poll, reports from industry regulator Malaysia Palm Oil Board (MPOB) will be released on coming Thursday.
Malaysian palm oil stockpiles are expected to grow in July for the first time in three months as production gains outpaced export demand.
Palm stocks at the end of July stood at 1.63 million tonnes, a 6.5 per cent rise from the previous month, according to Reuters.
The survey also showed July’s palm exports rose four per cent to 1.43 million tonnes in July, led by growing shipments to China and Europe.
Spot ringgit appreciated 0.035 per cent to 4.2785 against the US dollar this week, compared to 4.2800 on last Friday.
The greenback has been weighed down by political turmoil gripping Washington and by largely uninspiring US economic data, particularly sluggish inflation, which is adding to uncertainties about the pace of future Federal Reserve policy tightening.
On Monday, Malaysian palm oil futures hit a near four-month high, tracking overnight gains in soyoil on the Chicago Board of Trade and on forecasts of lower-than-expected output increases and end-stocks.
On Tuesday, Malaysian palm oil futures dropped from a near four-month high the previous session, due to expectations of a rise in production in the coming months.
On Wednesday, Malaysian palm oil futures fell to their lowest in a week, weighed down by expectations of rising production and tracking weaker performances in related edible oils.
On Thursday, Malaysian palm oil futures fell for a third straight session, hitting their lowest in a week due to forecasts for rising output and weaker performing related edible oils.
On Friday, Malaysian palm oil futures recovered from their lowest in one-and-a-half weeks to trade slightly higher, underpinned by an improvement in export demand.
Technical analysis
According to the FCPO daily chart, the market retraced and declined from the week-high of 2,705.
After three days of consecutive losses, the market rebounded slightly and held at the psychology support level of 2,600 on Friday.
On Monday, Malaysian palm oil futures gapped up and surged to a near four-month high in the early trade, with the benchmark contract closing at 2,675, which is 22 points higher than the previous closing price.
On Tuesday, Malaysian palm oil futures traded lower, with the benchmark contract closed at 2,654, which is 21 points lower than the previous closing price.
On Wednesday, Malaysian palm oil futures rebounded after hitting a week-low, with the benchmark contract closing at 2,643, which is 11 points lower than the previous closing price.
On Thursday, Malaysian palm oil futures plunged to a week-low, with the benchmark contract closed at 2,602, which is 41 points lower than the previous closing price.
On Friday, Malaysian palm oil futures pared its early gains during the late trade, with the benchmark contract closed at 2,606, which is four points higher than the previous closing price.
According to the chart above, the market is heading toward to middle Bollinger Band after it failed to trade above the upper band.
In the coming week, the market is expected to trade between 2,600 and 2,700. The channel of Bollinger bands is moving northward which indicated that market still stay in the uptrend.
Resistance lines are positioned at 2,690 and 2,750, whereas support lines would be positioned at 2,540 and 2,500, these levels would be observed next week.
Major fundamental news this coming week
ITS, SGS and MPOB reports will be released on August 10.
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.