Malaysian palm oil futures on Bursa Malaysia Derivatives exchange ended lower on Friday due to poor export performance and weakness in external markets. Cargo surveyor SGS estimated April 1-15 palm oil exports at 4,52,038 tonnes, a 13% decline from a month ago, while surveyor ITS (Malaysia) estimated a fall of 21 per cent compared with the previous month. Palm oil output in the world's biggest producers – Indonesia and Malaysia – is currently rising, after disruptive weather events last year hurt yields. The government-linked Malaysian Palm Oil Board said on Monday that end-March stocks were at a three-month high of 1.61 million tonnes, as output rose 29 per cent last month to 1.42 million tonnes. However, Chinese demand for palm oil is seen picking up as its discount to soya oil narrows.
CPO futures moved lower against our expectations. As mentioned in the previous update, unexpected fall below 3,315 Malaysian ringgit (MYR) a tonne damaged our bullish expectations for a test of the psychological resistance at 3,500 MYR/t. We now anticipate rallies to 3,315-3,345 MYR/t to cap upside attempts for a decline below 3,150 MYR/t levels. Ideally, the fall could extend towards 3,025 MYR/t on from where strong bargain-hunting interest could arise. However, long-term downside targets come much lower below 2,800 MYR/t. Only a direct rise above 3,425 MYR/t could cause doubts on our bearish view now. Such a rise could once again revive hopes of a test of 3,500 MYR/t, which we do not favour now.
We believe the impulse that began from 1,427 MYR/t, which hit 4,486 MYR/t ended and a prolonged corrective move has possibly ended at 1,335 MYR/t. In the big picture, a new impulse began from 1,335 MYR/t and the third wave with a projected objective of 3,900 MYR/t has been met. Most probably a wave “A” target has been met.
A corrective wave “B” targeting 3,625-3,700 MYR/t has also materialised.
The present fall could still be a wave “C” expecting to end near 3,025 MYR/t. Only a rise above 3,500 MYR/t will force us to review our counts again. RSI is in the neutral zone now indicating that it is neither overbought nor oversold.
The averages in MACD are still below the zero line of the indicator still indicating bearishness to be intact. Only a cross-over above the zero line again could indicate a reversal in trend.
Therefore, look for palm oil futures to test the support levels in the coming sessions.
Supports are at MYR 3200, 3155 & 3095 Resistances are at MYR 3275, 3315 & 3365.
(The author is the Director of Commtrendz Research and also an advisory panel member of the Multi Commodity Exchange of India Ltd. The views expressed in this column are his own and not that of the MCX. This analysis is based on the historical price movements and there is risk of loss in trading. He can be reached at >gnanasekar_thiagarajan@yahoo.com .)