In the short to medium term, FCPO outlook remains negative in anticipation of higher inventory in Jun-18 (after registering its 5th straight monthly drop) amid seasonal uptrend in palm production in 2H, weakness in related edible oils and lower restocking activities (post Ramadhan). Despite tumbling 7.3% from monthly high of RM2498 (24 May), FCPO mid to long term outlook remains negative and near term technical rebound will be capped at RM2380-2400 levels.

FCPO prices battered 7.3% YTD amid weak fundamentals. A confluence of negative headwinds amid nagging concerns of rising inventory amid production surplus in a seasonally strong June-Sep period and the resumption of 5% export tax effective May 2018, coupled with weakness in rival oil related prices and anticipation of lower restocking activities post-Ramadhan; the FCPO declined 7.3% YTD.

FCPO needs to stage a swift rebound above RM2380 to arrest current downtrend. Following a 7.9% or RM198 slump from RM2498, FCPO staged a technical rebound from RM2300 (13 June low) to end at RM2316 yesterday. We envisage a mild relief rebound from steeply oversold positions towards RMRM2348 (30h SMA) and RM2365 (76.4% FR) territory before reaching the stiff resistance at RM2380 (10d SMA). Only a decisive breakout above RM2380 will arrest the current downtrend and lift prices higher towards RM2400-2415 (20d SMA) levels. On the flip side, a breakdown below RM2300 could see more retracements towards RM2282 (123.6% FR) and RM2257 (138.2% FR) zones.

Source: Hong Leong Investment Bank Research - 14 Jun 2018