OBSERVATIONS: The Kuala Lumpur CPO futures market is back on the uptrack - again.
After a two-week slumber, the CPO futures bull woke up last week. Last Wednesday was the day of the bull’s re-awakening, when the actively-traded benchmark April 2009 contract pierced through the erstwhile RM1,830 a tonne short-term overhead resistance level.
Renewed speculative buying interest lifted the April 2009 contract to an intra-week high of RM1,908 a tonne. The contract settled last Friday at RM1,880, up RM101. or 4.96 per cent. over the week.
Speculation that the industry would experience a sharp drop in production from January through March this year was the catalyst that sparked last week’s price surge.
Market talk (hope?) is that the 175,000-tonne or 10.6 per cent drop in December 2008 production would be followed through from January through March this year, due to seasonal factors. October through March is the low production season for palm oil, due in no small part to the north-east monsoon rainstorms which hamper harvesting of the crop.
With export offtake steady to higher - export monitor Societe Generale de Surveillance’s January 2009 export estimate of 1.325 million tonnes was higher than Year 2008’s monthly average export figure of 1.284 million tonnes - a significant decline in output would lead to depletion of palm oil stockpiles. That’s the reckoning (hope?) of bullish-minded market players
The first clue to whether such a (hoped-for) scenario will pan out will be known tomorrow when the Malaysian Palm Oil Board (MPOB) releases its report on January trade data and end-January palm oil stocks.
Conclusion: Market and industry interpretation of the MPOB report will be pivotal as a determinant of market direction this week.
The technicals, though, suggest that this market has more upside room to manoeuvre.
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