The Hindu Business Line : Palm oil futures may decline

MALAYSIAN crude palm oil futures on MDEX closed sharply lower as weaker fundamentals prevailed and dashed any hopes of a recovery in prices. CBOT soya oil futures fell lower after the release of the USDA supply/demand report, which predicted a record crop of 3.107 million bushels for 2004-05.

However, soya oil futures have since recovered due to a slightly better NOPA report and prospects of higher exports. The prospects of rising global oil supply against uninspiring demand is likely to pressure palm oil prices in the long term. Exports are not expected to pick up in the coming months as the major consumers have stocked ahead of the festive season.

Societe Generale de Surveillance (SGS), a leading tracker of Malaysian palm oil exports, said shipment of local oil palm products for October 1-15 stood at 601,800 tonnes, down 11 per cent from its estimate for September 1-15.

The third month December active contract fell lower in line with our expectations. Minor head and shoulder pattern is seen with neckline at 1391 Malaysian ringgit (MYR) a tonne and a break there targeting 1210-1250 MYR/tonne. The neckline point at 1391 MYR/tonme has been taken out, but support at 1385 MYR/tonme has held well again.

This level has been holding strongly in the past month. As mentioned in the previous week's update, the current price structures do not favour an up move and a daily close below 1380 MYR/tonme will lead to a sharp fall. Only a unexpected move above 1445 MYR/tonme will force us to abandon our bearish view of the market.

One wave target near the 1365 MYR/tonme has already been met. The move to 2003 MYR/tonne is the end of the fifth wave impulse and a move lower from there is a corrective A-B-C pattern in the making. We now believe wave "A" got over at 1368 MYR/tonne followed by wave "B" which hit 1566 MYR/tonne.

A wave "C" has possibly begun from there. This will be confirmed on the break of 1368 MYR/tonne. RSI is now in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD have gone below the zero line in the indicator suggesting bearishness, which is one of the main reasons for abandoning our bullish view.

Current prices are lower than the short-term 8-day EMA at 1410 MYR/tonne and the 34-day EMA is now at 1437 MYR/tonne. Look for prices to head lower. Supports at, 1380, 1365 and 1350 ringgits. Resistances at, 1410, 1437 and 1445 ringgits.

(The author is associated with the Multi Commodity Exchange of India (MCX). The views expressed in this column are his own and not that of his employer. 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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