The Hindu Business Line : Palm oil futures to consolidate

MALAYSIAN crude palm oil futures on MDEX closed higher on Friday despite a initial sell off due to tough import regulations imposed by India just ahead of a Hindu festival when demand rises. With news of palm oil shipments unable to enter Indian Ports, due to failure to meet import specifications, prices reacted sharply downwards.

However, prices strengthened towards the end on expectations of bullish data on shipments from cargo surveyors next week. The Indian Government stipulated earlier this month that CPO and crude palmolein must have an acid value of two per cent and a carotenoid value of 500 to 2,500 milligrams per kg, failing which importers had to pay a duty of 70 per cent instead of 65. With the production expected to be higher than demand for vegetable oils this year, any intermediate price rise will not be sustainable.

SGS earlier estimated so far a shipment of 967,137 tonnes for the first 25 days of August, against the 1.16 million tonnes officially noted for July. Chicago soya oil futures also helped sentiment after a strong rally caused by a sharp cut in the US soyabean ratings.

The active contract continued to move higher and managed to close above a key resistance point at 1360 Malaysian ringgit/tonne. As mentioned last week in our update, a close above the neckline point at 1330 MYR/tonne, has added to an intermediate strength in CPO futures with a likely hood of a test of the long term sloping trend line point at 1360 MYR/tonne.

Support will now be at 1350 MYR/tonne followed by 1330 MYR/tonne and a break of this level this time will see a sharper sell off than the one noticed earlier. A break there should target 1200-20 MYR/tonne levels initially followed by an elliot target at 1175 MYR/tonne. The 38.2 per cent fibonacci retracement from 1695 to 1233 is at 1395 MYR/tonne and move to that level is quite expected.

With the strong current up move, we believe the impulse wave "C" has ended at 1233 MYR/tonne and a new corrective wave is now in progress.

A positive divergence is now seen in the indicators, which could signal a change in the intermediate trend. RSI is in the neutral zone again indicating that it is neither overbought nor oversold. The averages in MACD, have gone above the zero line in the indicator signalling a possible change in the trend. Current prices are below the short term 9 day EMA at 1338 MYR/tonne and the 25day EMA is now at 1321 MYR/tonne.

Look for prices to consolidate and test the resistance levels in the coming week. Resistances at 1370, 1395 & 1415 ringgits. Supports at 1350,1330 & 1275 ringgits.

The author is a trader with Scotiabank and the views expressed by him are his own and not necessarily of his employer. This analysis is based on historical price movements and there is risk of loss on trading.

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