Analysts are anticipating crude palm oil (CPO) prices to rally further due to La Nina concerns, rising soybean prices and a seasonal jump in exports due to festive seasons.
The Edge Financial Daily had reported last week that unusual global weather conditions are damaging crop production and causing commodity prices to rise.
In a note yesterday, ECM Libra Investment Research said there was a possibility of more upside in the near term for CPO prices due to the seasonally low CPO stock levels and potential weather threats to North American soybeans.
“CPO futures prices last week saw a 1.1% gain after it passed the RM2,500 per tonne level on Thursday. CPO is also tagging crude oil prices, which gained 4.4% during the week.
“We view there to be some resistance at the RM2,600 per tonne level,” ECM added, saying that it did not think CPO fundamentals justified a rally beyond that.
ECM Libra said exports this month had seen a dip so far, which was surprising as it expected a seasonal increase in exports for July and August due to the upcoming Ramadhan and Diwali (Deepavali) seasons in Pakistan and India, respectively.
It added that although signs of the La Nina phenomenon were developing, according to US and Australian weather sites, it was not severe and had tapered off.
“It is nonetheless an item to be watchful. If the peak production period falls severely short of expectations, Malaysia would see a supply shortage situation,” it said.
ECM maintained its neutral call on the plantation sector, and expected CPO prices to be range bound at RM2,200 to RM2,600.
It has a buy call on Boustead Holdings Bhd, hold on Sime Darby Bhd, IOI Corp Bhd, Kuala Lumpur Kepong Bhd (KLK), Genting Plantations Bhd, and TSH Resources Bhd, and a sell on IJM Plantations Bhd.
Meanwhile, Hong Leong Research said CPO futures were expected to see a technical pullback in the near future, after rallying in July.
“Since CPO futures has hit the twin peaks above RM2,700 per tonne in January and March, it has corrected to as low as RM2,270 in July before recovering to RM2,498 last Friday.
“It is expected to face some technical pullback in the near future after surging 11.7% from the early July low of RM2,270 to last week’s high of RM2,535 within three weeks,” it said.
“Overhead resistance is at the RM2,550-RN2,600 level whilst supports are now at RM2,454 (200-day simple moving average - SMA) and neckline support at RM2,400,” it said.
Boustead, Sime Darby, and IJM Plantations closed unchanged at RM3.90, RM7.79 and RM2.51 yesterday, while IOI Corp fell one sen to RM5.10. KLK was one of the top gainers, inching up 18 sen to close at RM16.98.
Genting Plantations closed two sen lower at RM7.08, while TSH Resources gained one sen to RM1.91. CPO for October delivery fell RM25 to close at RM2,473.
This article appeared in The Edge Financial Daily, July 27, 2010.
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