In the short to medium term, FCPO outlook remains negative in anticipation of higher inventory in July-18 (its 2nd rise after June after falling 5 consecutive months) amid seasonal uptrend in palm production in 2H, weakness in related edible oils and lower restocking activities (post Ramadhan). After a 12.2% slide from 3M high of RM2498 (24 May), FCPO could stage an oversold rebound in the short term, in line with the recovery in soybean and crude oil prices coupled with a weak RM (vs US$). Stiff resistances are set at RM2240-2280 levels.

FCPO prices battered 12.3% YTD amid weak fundamentals. A confluence of negative headwinds amid nagging concerns of rising inventory amid production surplus in a seasonally strong 2H and the weakness in rival oil related prices saw FCPO nosedived 12.3% YTD. Sentiment was also dampened by lower restocking activities after Ramadhan festive season.

FCPO needs to stage a decisive rebound above RM2211 to arrest current downtrend. FCPO staged a rebound to end at RM2191, following a 14.3% (RM358) slump from RM2498 to a low of RM2140 (25 July). Should there be breakout above RM2211 (downtrend line), CPO prices may be lifted towards RM2238 (30d SMA) and RM2276 (38.2% FR) levels, with LT objective situated at RM2318 (50% FR). On the flip side, a breakdown below RM2164 (25 July close) could see more retracements towards RM2140 and RM2100 psychological supports.

Source: Hong Leong Investment Bank Research - 31 July 2018