Palm Oil prices remain under pressure with continued aggressive posturing by U.S. President Trump in the prolonged Sino-American trade war. The US has more than doubled a 10% tariff to 25% tariffs on USD200 billion of Chinese goods. Progress is also underway to raise tariffs on remaining USD300 billion worth of Chinese imports. China has yet to, but likely will retaliate. Quantification would be guesswork at this juncture but the impact on market sentiment is singular; bearish. Uncertainty over global growth outlook continues to keep investors on the sidelines.
Meanwhile, Malaysia’s Minister of Primary Industries Teresa Kok is midway through an European roadshow to promote Palm Oil and to demonstrate Malaysia’s commitment to maintaining sustainable agriculture practices. Whether this will appease the EU and various talking heads from NGOs with vested interests remains uncertain but recent comments from the likes of EU Ambassador and Head of Delegation to Malaysia, Maria Castillo Fernandez, seem to suggest that they are open to discussion on the way forward.
Recent efforts by both Malaysian and Indonesian authorities to reduce tariffs in an effort to accelerate demand for CPO and reduce stockpiles have been successful in reducing inventory levels to around 2.73 million tonnes in April but the concern remains that this moderation may reverse in coming months as we head into the peak season.
Although prices continue to remain weak and seem to be trading in a sustained downtrend, there could be some reprieve coming out of the trade was with the imposition of further import tax on US soybeans.
We remain cautious as China’s palm oil imports are already up 30% on year in March largely due to the Asian Swine Flu. Once this comes under control and Soybean crushing resumes, possibly towards the end of the year, and this will coincide with peak season, CPO price is likely to face more downward pressure.
From a technical perspective, 3-month FCPO price chart continues to trade within its downward sloping channel dating back to January 2017. In the immediate term, there are no indications of any potential reversal in this downtrend, suggesting CPO prices may continue to test support at RM1972. A breach of this support level may drag CPO price down to RM1953.
