PETALING JAYA: Crude palm oil (CPO) futures on Bursa Malaysia tumbled yesterday after a last-minute sell-off wiped out gains made so far this year.
The benchmark third month contract for October delivery plunged RM69 to close at RM3,001 per tonne yesterday. The spot month August contract was down RM40 to RM3,055 while September fell RM79 to RM3,001.
“CPO is under pressure on rising supply and weakening sentiment on commodities, but we see demand from overseas picking up ahead of the fasting month which will start in September,” a Kuala Lumpur-based trader said.
CPO price had in March risen to a record RM4,486 per tonne, coming off a rally that started in early 2006.
Yesterday’s fall, on the back of a 9.2% drop last week, put CPO current price below where it was at the start of the year although it remained 16% higher from a year ago.
Earlier this month, Malaysian Palm Oil Board (MPOB) monthly statistics showed palm oil stockpiles rising to a record for a second consecutive month at 2.04 million tonnes in June amid rising output from local estates and slow export growth.
CIMB Securities, on July 18, said the firm turned bearish on the plantation sector for the first time in three years, partly on expectation that prices might have peaked this year.
It said higher prices in the past three years had prompted replanting of oilseed and cut consumption demand in low-income countries.
But the sharper-than-expected CPO price decline in recent weeks had raised the Government’s concern, and Plantation Industries and Commodities Minister Datuk Peter Chin Fah Kui was quoted over the weekend as saying that measures were being undertaken to reduce local palm oil inventories to support prices.
Malaysia’s palm oil output was expected to reach 17 million tonnes this year, Chin said two weeks ago, which was higher than MPOB’s target of 16.2 million tonnes made earlier this year.
Six months to June, local output had reached 8.2 million tonnes and is projected to rise further as production enters seasonally high period.
The sharper drop in CPO price against other oilseed products made the commodity at least 40% cheaper compared with close rival soybean oil, Bloomberg data showed.
Soybean oil in Chicago was traded at 58.90 US cent a pound as at 8pm Malaysia time yesterday, down 0.5% from its previous close. It is up 17.8% year-to-date.
StarBiz technical analyst K.M. LEE said the futile attempts to penetrate the RM3,750 overhead barrier on three occasions between mid-April and mid-June triggered a fresh bout of liquidation pressure in CPO futures, which witnessed prices cracking the solid floor of RM3,400 as well as the important 200-day simple moving average (SMA) at RM3,300.
Based on the daily bar chart reading, this was the first time prices dropped below the 200-day SMA since the massive rally started two years ago at around the RM1,500 level.
“Hence, the prevailing trend is overwhelmingly bearish but the downside risk may be limited, as prices enjoy strong support at the RM3,000 mark,” he said.
If the crucial base decides to give way for whatever reason, investors should be prepared for another round of selling pressure, which may tear prices to the RM2,843-RM2,850 level. But, the downward momentum appeared to be “easing,” as indicators showed that CPO is currently “grossly oversold.”
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