Malaysian palm oil futures on Bursa Malaysia Derivatives exchange ended lower on Friday on profit-taking although expectations of strong demand underpinned prices. A persistent drought in the US Midwest that has damaged soyabean crops, leading to a smaller supply of soyabean oil, could mean higher demand for palm oil. Malaysia's palm oil exports rose in June from a month ago, according to cargo surveyor data. Higher exports, together with weaker production growth, could pile further pressure on Malaysia's stocks, which fell to a 13-month low in May. Industry regulator Malaysian Palm Oil Board will issue official data on stocks and output for June on Tuesday.
CPO active month futures rose higher in line with our expectations. As mentioned in the previous update, chances also exist for the move to extend towards 3,195-3,200 Malaysian ringgit (MYR) a tonne levels in the near-term. Good support will be seen at 3,100-05 MYR/tonne levels followed by 3,055 MYR/tonne. While this support holds, prices could aim for 3,200-35 MYR/tonne in the near-term. Only a decline below 2,975 MYR/tonne could force us to consider the possibility of retest of 2,700 MYR/tonne levels again. Favoured view expects a push higher to 3,200-35 MYR/tonne levels in the near-term and a possibility of even a test of 3,325 MYR/tonne, while dips to supports hold.
A possible new impulse ended at 3,628 MYR/tonne. A corrective decline in the form of a wave “A” could still be in progress. A corrective wave “B” could unfold with potential targets near 3,210 MYR/tonne or even higher to 3,325 MYR/tonne. A wave “C” kind of a decline below 2,700 MYR/tonne looks likely subsequently in the coming months. Alternatively, an “A-B-C” corrective move is coming to an end near 2,750 MYR/tonne and subsequently a new impulse will begin targeting 3,300 MYR/tonne levels. We prefer to go with this alternative of a possible impulse to have begun. We will abandon this possibility if prices close below 2,975 MYR/tonne. The averages in MACD are below the zero line of the indicator indicating a bearish reversal. Only a cross-over again above the zero line again could hint at resumption of up-trend.
Therefore, look for palm oil futures to consolidate and then rise.
Supports are at MYR 3,105, 3,055 and 2,985. Resistances are at MYR 3,185, 3,235 and 3,300.
(The author is the Director of Commtrendz Research and also in the advisory panel of Multi Commodity Exchange of India Ltd (MCX). The views expressed in this column are his own and not that of 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 .)