MPOC CPO futures: It's now a bear market

OBSERVATIONS: The Kuala Lumpur CPO futures market has morphed into a bear.

This it did by decisively penetrating on the downside the RM2,335 a tonne long-term technical support level. The benchmark September 2009 contract plunged last week to a low of RM2,274 before settling last Friday at RM2,285, down a whopping RM180 or 7.30 per cent over the week.

Obviously many market players were running scared, frightened by the recent thick slew of news on bearish developments regarding the fundamentals of the crop.

While the 74,000-tonne increase in end-May 2009 stocks of palm oil to 1.37 million tonnes, as reported by the Malaysian Palm Oil Board (MPOB) was the catalyst for the previous week's price slide, bad news on the export front compounded market players' fears - and probably led to a firming of their conviction - that the end to the January through mid-May 2009 bull run is nigh. More so now that the industry is in the middle of the April-through-September seasonal high production period.

The latest June 1-15 export estimates compounded this market's bearish tone. Societe Generale de Surveillance and Intertek Agri Services' first half June export estimates were 570,187 tonnes and 560,416 tonnes respectively. The total combined estimates of the two export monitors averaged some 565,000 tonnes, down about 61,000 tonnes or 9.80 per cent compared to the average of their estimates for the corresponding period in May.

What's more, market grapevine talk that India has deferred taking delivery of some 70,000 tonnes of palm oil for has fuelled speculation of defaults in export orders.

Weakness in world commodity markets overall, and in crude oil markets in particular, provided a bearish backdrop, adding to the gloom.

Conclusion: The June 1-20 export estimates, which should be public knowledge today, is likely to be the determinant of immediate market direction.

Because of the sharp price tumbles over the past two week, this market is now in an extremely technical oversold position and a technical rebound could be in the offing. However, don't be surprised if it turns out to be a dead-cat bounce.