Crude Palm Oil Weekly Report – November 3rd, 2018

Malaysia’s palm oil futures (FCPO) snapped fourth losing streaks on Friday, as industry analyst Dorab Mistry mentioned palm oil prices are close to a bottom and balance between supply and demand will begin next year.

On Friday, FCPO rose 0.23 per cent to 2,152 as compared with last Friday’s closing price at 2,147, a totaled of five points.

Average trading volume went up from 26,726 contracts to 34,866 contracts from the previous week, a total increase of 30.46 per cent.

There was also a 1.7 per cent decrease to 252,090 contracts from 256,368 contracts in the daily average open interest from the previous week.

The latest AmSpec showed weakened export data by 12.91 per cent in October, a total of 1.394 million MT, from 1.6 million MT shipped during September.

Societe Generale de Surveillance (SGS) reported a decline of 12.93 per cent in exports of Malaysian palm oil products during October to 1.427 million tonnes from 1.629 million tonnes shipped during September.

On Thursday, a phone call between US President Donald Trump and Chinese President Xi Jinping showed positive outcome, fueling hopes of a US–China trade deal as Trump wants to reach a trade agreement with China at the G20 meeting and asked officials to begin drafting potential terms.

Traders reacted to the positive news and caused the most-active soybean contract on Chicago Board of Trade (CBOT) to rise for more than five per cent, its biggest weekly gain since early July 2017.

However, China most-active soybean oil future on the Dalian Commodity Exchange (DCE) was down 3.33 per cent while January palm oil contract dropped two per cent.

In addition, China’s most-active soymeal futures plunged five per cent, its biggest daily drop in almost six years. From the positive outcome of US-China trade talk, this will lead to a surge of imports from US to China and the local soybean prices will drop.

Malaysia’s palm oil also reacted to the news as it fell 1.7 per cent to RM2,108 during Friday’s market open.

The local palm oil market reacted to the drop in either China or US soybean oil as palm oil prices are affected by movements of other edible oils as they compete for a share in the global vegetable oil market.

Despite the drastic drop of palm oil prices, a fresh three-year low, industry analyst Dorab mentioned that palm oil prices are close to a bottom and palm oils prices are expected to improve in 2019 as higher exports are expected due to strong demand.

Production will also rise on better fresh fruit bunch yields compared to this year, as forecast by Malaysian government on Friday.

The output in 2019 is expected to rise to 20.5 million tonnes while closing stock will decline to 2.2 million tonnes from 2.7 million tonnes.

The prices are also estimated to trade around RM2,500 per tonnes next year as compared with RM2,300 this year, based on an economic outlook report released on Friday.

Spot ringgit depreciated 0.4 per cent to 4.1725 against the US dollar, compared with 4.156 on Friday.

The dollar steadied on Friday, ahead of the closely watched US jobs report, after pulling back from a 16-month high during the previous session as investors cautiously moved back into riskier assets.

Technical analysis

From hourly chart, a white engulfing candlestick was formed during the second session on Friday and broke the immediate support at 2,145. RSI also showed that it may retest a resistance level at 60, signaling a rebound is imminent.

Previously, FCPO has tried to break above 2,170 level and it failed twice and has since retraced until 2,120. It may retest the key resistance level at 2,170 again.

Overall, Malaysia palm oil remain in bearish sentiments and aggressive traders may initiate long positions.

In the coming week, the FCPO might continue to trade upwards. If the FCPO fails to break above the first resistance level, it may trade towards the first support level.

Resistance lines will be positioned at 2,170 and 2,185, whereas support lines will be at 2,130, and 2,110 .These levels will be observed in the upcoming week.

Major fundamental news this coming week

AmSpec and SGS reports will be released on November 10, 2018 (Saturday).

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.

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