Palm oil may test support, rise

Malaysian crude palm oil (CPO) futures on Bursa Malaysia Derivatives exchange ended sharply higher on Friday lifted by strong technical buying. However, poor export demand and possibility of a tax cuts in exports could weigh on prices. A build-up in stocks as production outpaces lagging exports will continue to pressure prices lower. Indonesia will cut its export tax on crude palm oil in May to 17.5 per cent from 22.5 per cent this month as international prices have consistently fallen, a move that may shift orders away from Malaysia. Dollar weakness was also generally supportive of demand for palm oil products, which are priced in dollars, although it hurts margins for local refiners. Cargo surveyors Intertek Testing Services and Societe Generale de Surveillance will issue April 1-25 Malaysian palm oil exports on Monday.

CPO futures rose higher against our expectations. CPO futures have pulled back above 3,315-25 Malaysian ringgit (MYR) a tonne being an important support in the recent past. Though, we still favour the downside with the possibility of even a fall towards 3,025 MYR/tonne, we are getting wary of it in the very short-term. Price structures are slowly turning bullish and a direct close above 3,385 MYR/tonne (July) could be first sign that the market could be turning direction. A confirmation of a reversal in trend from bearish to bullish will be on a close above 3,450 MYR/tonne. Such a rise could increase the possibility of a move even up to 3,550/75 MYR/tonne or even higher to 3,600 MYR/tonne. However, even if such a rise were to happen, subsequently, a strong decline towards 3,025 MYR/tonne might still be possible.

We believe the impulse that began from 1,427 MYR/tonne, which hit 4,486 MYR/tonne ended and a prolonged corrective move has possibly ended at 1,335 MYR/tonne. In the big picture, a new impulse began from 1,335 MYR/tonne and the third wave with a projected objective of 3,900 MYR/tonne has been met. Most probably a wave “A” target has been met. A corrective wave “B” targeting 3,625-3,700 MYR/tonne has also materialised. The present fall could still be a wave “C” expecting to end near 3,025 MYR/tonne. Only a rise above 3,500 MYR/tonne will force us to review our counts again. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still below the zero line of the indicator still indicating bearishness to be intact. Only a cross-over above the zero line again could indicate a reversal in trend.

Therefore, look for palm oil futures to test the support levels initially and then rise higher.

Supports are at MYR 3,335, 3,250 and 3,165. Resistances are at MYR 3,385, 3,450 and 3,505.

(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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