Crude palm oil futures (FCPO) on Bursa Malaysia Derivatives ended the week lower due to the change in Indonesia’s export tax structure which would give stiff competition to Malaysian exporters.
The benchmark FCPO November contract fell RM28 or 0.93 per cent to close at RM2,975 per tonne on Friday from RM3,003 per tonne last Friday.
The trading range for the week was from RM2,953 to RM3,070. Total volume traded for the week amounted to 98,096 contracts, dropping down 7,282 contracts from the previous week.
The open interest as at Thursday decreased to 127,529 contracts from 131,086 contracts the previous Thursday.
The crude palm oil market started the week on a strong note due to continuous strong export demand and worries about the less sufficient rains in the US Midwest during the week. The general recovery in global equities and a weak US dollar also boosted the commodities market as well.
However, the palm oil market came under pressure later in the week when the Indonesian government announced the change in its palm oil export tax structure. The Indonesian government will revise its maximum export tax for crude palm oil from 25 per cent to 22.5 per cent effective from October 1 onwards.
Indonesia’s export tax on palm oil products will be reduced from 25 per cent to 13 per cent. This move was in line with the Indonesian government’s aim to encourage and expand more palm oil downstream activities.
Malaysian refiners will face tough competition from their Indonesian counterparts as the Indonesian refiners can sell their products cheaper with the lower export tax in the global market.
The weather concern on US crop yield and output continued to underpin the market.
Dry weather in the US Midwest was forecasted this coming week with possible rains only to be seen next weekend.
Pro Farmer, a private surveyor of US crops concluded its annual crop tour on Friday with expectations of a lower US corn yield and production compared with the US Department of Agriculture’s (USDA) forecast. Meanwhile its soybean yield and production expectations were slightly above the USDA’s projection.
Both cargo surveyors ITS and SGS released their palm oil export figures for the period of August 1 to 25 on Thursday at 1,361,766 tonnes (6.25 per cent increase) and 1,365,693 tonnes (5.51 per cent increase) respectively.
The export data was in tandem with the market expectation of 1.36 million tonnes. The Malaysian market will be closed from midday on August 29 to September 1 in conjunction with the Hari Raya celebrations and will resume trading on September 2.
Technical View
The market was choppy throughout the week with mixed fundamental news. Traders were squaring their positions and stayed out from the market ahead of long holidays this coming week.
The weekly close below RM3,000 for the palm oil market was the first time since Oct 15, 2010. However, the inability to break the previous low of RM2,917 in coming weeks will signal for a market rebound in the short term.
Due to the long holidays this coming week, traders will focus on the development of the US weather and global financial news. We expect palm oil market to be quiet since most traders will be away for the holidays.
The market will probably have some rebound this week in thin trading. Resistance will be pegged at RM3,070 while support is set at RM2,917. Any breakout from the current range will lead palm oil prices to a new direction.
Major fundamental news this coming week
Malaysian export data for the period of August 1-31 by SGS and ITS on August 29 and September 2 respectively.