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Malaysian palm oil futures ended lower on Friday on spillover weakness from soya oil and crude oil and on weak CPO export numbers, but ended off lows on fall in production and lower-than-expected inventories.

The Government-run Malaysian Palm Oil Board estimated CPO output in September to drop 1.3 per cent on month to 1.58 million tonnes. MPOB pegged palm oil exports 12 per cent lower on month in September, a smaller decline compared with estimates of carg o surveyors, which put the September number at down 19 per cent. Friday, cargo surveyors estimated a 12-16 per cent on-month fall in Malaysia’s overall palm oil exports for October 1-10.

CPO futures headed lower in line with our expectations. As mentioned in the previous update, failure to hold support at 1870 Malaysian ringgit/tonne (MYR/tonne) dragged prices further lower. An important support now lies at 1625 MYR/tonne. With the indicators warning of a pullback in the offing, we believe the downside from current levels look very limited and warn against aggressive shorts. A new impulse began from 1427 MYR/tonne and this could be the third wave, which has not ended so far. We can expect a corrective fourth wave in the form of A-B-C in progress now. Believe we could be in a wave “C” with possible targets extending even lower towards 1625 MYR/tonne.

RSI is in the oversold zone now, indicating that it is neither oversold and a possible upward correction in the offing. The positive divergence we saw in the previous week has disappeared, which is a sign of bearishness to continue. The averages in MACD are still below the zero line of the indicator indicating overall bearishness to be intact. Therefore, look for palm oil futures to head lower initially and then subsequently pullback higher.

Supports are at MYR 1715, 1685 and 1625. Resistances are at MYR 1780, 1897 and 2020.

Gnanasekaar .T

(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.)

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