Palmoil HQ Crude palm oil futures: RM2,430 support level faces test

OBSERVATIONS: Taken aback by the thick slew of bearish news on the fundamentals for the commodity, Kuala Lumpur CPO futures market players liquidated their long positions in numbers last week, causing prices to dive.

The actively-traded August 2009 contract dropped to as low as RM2,445 a tonne, just a whisker above the RM2,430 immediate support level, before recovering some on short-covering ahead of the weekend. It settled last Friday at RM2,465 a tonne, down RM55, or 2.18 per cent, over the week.

Market players as a whole had been told - no, mentally conditioned - by so-called experts to expect a drop in end-May stocks to 1.2 million tonnes, from 1.29 tonnes, and also to expect a strong pick-up in exports due to strong Chinese demand.

So it came as a huge shock to be informed by the Malaysian Palm Oil Board, in its monthly report released last Monday, that end-May stocks had burgeoned to some 1.37 million tonnes, attributable in large part to a jump in May production to 1.40 million tonnes from 1.29 million tonnes in April.

What’s more, the latest June-10 export estimates were downright disheartening. The total combined estimates of Societe Generale de Surveillance and Intertek Agri Services averaged some 285,000 tonnes, down a whopping 152,000 tonnes or 35.12 per cent compared with the average of their estimates for the corresponding period in May.

As a reflection of the bearish mood, trading action last Friday resulted in an engulfing bear symbol - a major bearish candlestick pattern that in all probability presages more price weakness ahead.

Conclusion: This market is likely to fall to test the RM2,430 immediate support level in early trade this week. A decisive breakdown below that support level would signify that this market has morphed into a short-term bear.