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Malaysian palm oil futures ended lower on Friday on fears of global economic slowdown to affect demand for edible oils. Palm oil used in various consumer products has lost almost two thirds of it value from an all-time high of 4,486 Malaysian ringgit a tonne (MYR/tonne). A bumper harvest in top producers Malaysia and Indonesia also added to the present weakness. Malaysian crude palm oil output could reach 17.4 million tonnes in 2008. The Indonesian Palm Oil Producers Assoc iation is forecasting 18.6 million tonnes this year. Stocks are bound to rise due to global demand weakness, unless the bio-diesel demand rises.

CPO futures headed lower in line with our expectations. As mentioned in the previous update, failure to hold support at 1870 MYR/tonne dragged prices further lower. Prices have tested our anticipated near-term support zone near 1600 MYR/tonne. We maintain that the downside from current levels look very limited and warn against aggressive shorts. Indicators warn us of an upward correction in the offing with a possibility to test 1875 MYR/tonne or even higher towards 2035 MYR/tonne, as long as recent lows at 1595 MYR/tonne holds. A new impulse began from 1427 MYR/tonne and this could be the third wave, which has at 4486 MYR/tonne. A prolonged corrective fourth wave in the form of A-B-C is in progress now. Believe we could be in a wave “C” with possible targets extending even lower towards 1600 MYR/tonne. RSI is in the oversold zone now, indicating that it is neither oversold and a possible upward correction in the offing. A positive divergence is seen again raising hopes of a corrective upward move to take place. 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 consolidate and rise higher.

Supports are at MYR 1595, 1545 and 1405. Resistances are at MYR 1720, 1870 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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