Business Times CPO futures -- still bull market but volatility ahead

OBSERVATIONS: News of China's voracious appetite for edible oils was the catalyst behind last week's price spikes in the Kuala Lumpur CPO futures market and the US soyabean oil futures markets last week.

However, while China's recent huge purchases of US soyabeans and soyabean oil was evident in published US official statistics, the same cannot be said for its demand for palm oil. But the local market, nonetheless, joined the global edible oil bandwagon for the ride up the price chart to an eight-month high of RM2,540 a tonne last week, basis the third forward month contract, in the expectation that Chinese demand would be exhibited by way of a huge bulge in the latest estimates for palm oil exports.

In that expectation, market players were disappointed.

Export monitor Intertek Agri Services' 613,677-tonne estimate for palm oil exports in first half April represented a modest 22,000-tonne or 3.74 per cent increase over that for first half March. But it was Societe Generale de Surveillance's estimate of 582,823 tonnes, down some 9,000 tonnes or 1.56 percent that demoralised the bulls on that day, sending them running for cover in a frantic rush for the exits.

Market players' nerves, however, had steadied considerably by last Friday. The actively-traded July 2009 contract, on a third-month forward contract basis, settled last week at RM2,435 a tonne, still up RM136 or 5.92 per cent over the week despite the knock on the head to confidence.

Conclusion: The technical indicators point to a loss of bullish momentum, but no clear indication that the short-term bull has run its course.

Volatile trade with wild price swings are likely to be the order of the day. The short term support level is RM2,270.