Malaysian palm oil futures ended lower on Friday as electronic soybean oil prices traded in the negative zone during the Asian trading hours.
This was coupled with worries of palm oil output would rise further in the coming month and this has also dampened the local market sentiments.
Futures crude palm oil (FCPO) benchmark October 2014 contracts settled at 2,233 which was down 51 points or 2.23 per cent from 2,284 last Friday. Trading volume increased to 133,225 contracts from 106,004 contracts totalled last week.
Meanwhile, open interest based on Thursday increased to 229,465 contracts from 223,104 contracts last Thursday.
Société Générale de Surveillance (SGS) report on Monday (August 4, 2014) showed that Malaysia’s palm oil export dropped 2.8 per cent to 1.35 million tonnes for the first 31 days of July compared to last month at 1.39 million tonnes shipped during June. According to SGS, India, European Union and China have imported 339,862, 256,310 and 244,120 metric tonnes.
Demand from China is seen as losing steam but demand from India and European Union remained strong.
Reuters released its survey on Wednesday which showed that Malaysia’s end-July palm oil stock was likely to be at 1.64 million tonnes, which was down 1.3 per cent. Meanwhile, palm oil production is seen at 1.65 million tonnes, where it increased 4.9 per cent compared to productions in June and palm oil export in July was down 2.1 per cent to 1.45 million tonnes compared to exports in June.
Besides that, the Malaysia Palm Oil Association estimated that Malaysia palm oil production would rise 6.9 per cent to 1.68 million tonnes in July.
This estimated figure is slightly higher than Reuters’s survey.
However, market players are waiting for the official data which will be released by Industry regulator, Malaysia Palm Oil Board, next Monday.
Nevertheless, market participants warned that the palm oil output in Malaysia could record a sharp increase in August.
There is also a high chance that it might exceed two million tonnes mark in the next two to three months. The Malaysian ringgit had weakened further this week to 3.206 against the dollar and the the lowest for the week was at 3.2185 due to selling by leveraged funds and interbank speculators.
Moreover, the ringgit was also boosted by positive sentiments about the US economy which were supported by better-than-expected weekly US jobless claims. Also, this had led industry players to shift their interest to the US dollar.
The FCPO prices held in a relatively narrow range between 2,239 and 2,280 levels from Monday to Thursday.
Despite the price breaking below the sideway support line on Wednesday (August 6, 2014), it had managed to recover quickly and stayed above the 2,247 when it closed.
The price was able to hold above the support line due to weakened ringgit which had underpinned the FCPO prices.
However, the FCPO prices started to fall and it broke below the immediate support line on Friday due to electronic soybean oil price trading in the negative which had dampened the local market’s sentiments.
As we can see from the daily chart, the first condition mentioned in our previous weekly commentary failed to establish itself this week as the price was unable to form a long positive candle. However, the price had fulfilled the second condition after it broke below the immediate support level.
A long negative candle had formed on the weekly chart and throughout the week, the price failed to close above the immediate support level at 2,246.
Since the price stayed below the 2,246 level, the downside support levels at 2,210 to 2,200 and 2137 will be placed under observation, while resistance is set at 2,295, followed by 2,315-20.
Referring to MACD Indicator, the MACD line crossed above the signal line but positive sentiments failed to build up at the moment.
Overall, the market action remains negative until the trend is able to build up higher low.
Major fundamental news this coming week
SGS and ITS reports, MPOB report on August 11, 2014 (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.