Borneo Post FCPO Chart December 1, 2018.
The Malaysian palm oil futures (FCPO) rebounded from a three-year low, in line for a third consecutive winning day, as supported by the gains in related edible oils despite weak demand and high inventories weighing down gains.
On Friday, FCPO surged 0.29 per cent to 2,039 as compared to last Friday’s closing price at 2,045, a total of six points.
Average trading volume went down from 56,476 contracts to 48,287 contracts from the previous week, a total decline of 16.96 per cent.
Also, there was a 1.81 per cent decreased to 242,303 contracts from 246,699 contracts in the daily average open interest as compared with the previous week.
The latest AmSpec saw a decrease of 5.22 per cent in exports data on November 1-25, a total of 1.039 million MT, from 1.097 million MT shipped during October 1 to 25. Societe Generale de Surveillance (SGS) reported a one per cent decline in exports of Malaysian palm oil products during November 1 to 25 to 1.074 million tonnes from 1.085 million tonnes shipped during October 1 to 25.
On Monday, Indonesia announced that it will temporarily drop the export levy to zero from US$50 per tonne previously.
With this announcement from Indonesia, it will reduce the impact of a price dive that has been occuring recently and put it in a more advantageous position as its overall cost are lower than its neighbouring country.
Investors and traders will make more purchases in Indonesia and this will affect Malaysia’s palm oil market.
However, Malaysia also has plan to revive the low demand of palm oil in Malaysia. Malaysia reportedly announced that the so-called B10 biodiesel programme, which raised the minimum bio-content that the local producers must put into biodiesel to use in transport to 10 per cent from seven per cent currently, in hopes that this move will boost the low demand for palm oil as a feedstock.
On the following trading day, palm oil recovered from a more than three-year low, buoyed by a weaker ringgit, which was pegged at RM4.1950 at that time.
However, despite the rebound, weak demand and high inventory continued to lurk on the price.
This is further supported by the Malaysia’s largest palm oil FGV Holdings Sdn Bhd which commented that the subdued palm oil price likely to continue into the next year, forecasted the trading range between RM1,900 to RM 2,100 per tonne in 2019.
The upcoming meeting between US and China in G20 summit which will be held at Argentina would be the next major catalyst to determine the market direction of global edible oils as investors and traders were anticipating the outcome of the meeting.
There may be a chance to thaw the intensified trade war between US and China if the meeting goes successful.
This will buoy US soybean oil and indirectly boost the weak local market sentiment. However, should the meeting went haywire, Malaysia’s palm oil might continue to drop.
Palm oil is affected by movements in crude oil, as the edible oil is used as feedstock to make biodiesel.
It is also impacted by movements of other edible oils, as they compete for a share in the global vegetable oil market.
Spot ringgit appreciated 0.19 per cent to 4.1880 against the US dollar, compared with 4.1960 on last Friday.
The dollar was a tad firmer on Friday as markets nervously awaited the outcome of talks between the leaders of the world’s two biggest economies this weekend which could determine whether trade tensions between them will escalate further.
Technical analysis
From hourly chart, a higher low was formed at Friday’s session, indicated a rebound is imminent. A golden cross between EMA 25 and EMA 50 might occur next week, indicating a change of trend is imminent.
With RSI heading towards 68, which is the previous high of FCPO, FCPO will challenge the resistance level at 68 and it FCPO successfully break this level, the price might continue to head upwards.
However, overall market sentiment for FCPO remain bearish as shown in the daily chart as FCPO still below EMA 50 and EMA 25, which means that the bearish sentiment is yet to over.
In the coming week, FCPO might continue to trade higher, if FCPO failed to break above the first resistance level, it may trade towards the first support level.
Resistance lines will be positioned at 2,076 and 2,060, whereas support lines will be at 2,000, and 1967, these levels will be observed in the coming week.
Major fundamental news this coming week
AmSpec and SGS reports will be released on December 3 (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.