Up 1.1% at MYR2,129/tonne on 21/08/2019, Palm Oil prices are posting a mild pullback on profit-taking after peaking at MYR2,174/tonne. The recent rally from late July was triggered by bullish data released by Malaysian Palm Oil Board with end-July inventory registering a contraction of 0.8% to a fresh one year low of 2.39 million tonnes, stretching inventory contraction for a fifth consecutive month.
The inventory shrinkage took place despite a 15.1% increase in production to 1.74 million tonnes in July, the highest on a monthly basis this year, primarily as a result of on-month gain of 7.4% in exports to 1.49 million tonnes and contracting imports of 36,664 tonnes versus 101,250 tonnes in the month of June.
Positive news-flow from Indonesia last week on plans to develop 100% palm-based biodiesel and the planned adoption of B30 standard from January 2020 is expected to lend some downside support to prices in the near term as efforts to drive Palm Oil consumption and reduce inventory in Indonesia is seen to be gathering momentum. However, the ongoing Sino-U.S. trade spat and its negative implications on global economic growth prospects is likely to cap any significant upside to prices. This, coupled with the EU’s protectionist stance of imposing 8%-18% duties on Indonesia’s subsidised Biodiesel, suggests the upward momentum in Palm Oil prices may garner very little traction.
In the immediate term, we expect CPO price to continue trading within the downward sloping wedge formation with resistance at MYR2,250 and support levels at MYR2,100, MYR2,000 and MYR1,900.
