After peaking RM2344 in early Feb following a 1.3% MoM rise in Feb palm oil inventory to 3.05m MT (-5.2% from historical high of 3.22m tonnes), as seasonally lower output was more than offset by lower exports and domestic disappearance, FCPO prices rebounded from a low of RM2038 to end at RM2172 yesterday. In the short term, there is still leg in FCPO rebound amid the recovery in crude oil and soybean prices, coupled with the expectation of higher exports from Mar 2019 onwards (as palm oil exports typically improve when winter season nears end). Nevertheless, the rebound could be offset by seasonally higher palm output, RM strength, nagging concerns over high stockpiles and the battle with EU on unfair discrimination towards biofuel use. We see formidable barriers at RM2250-2270 levels.

A strong breakout above 200D SMA near RM2195 bodes well for further recovery. The recent V-shaped recovery from RM2038 (YTD low) and bottoming up daily indicators could lift prices higher to immediate target at RM2195 (200D SMA). A strong breakout above this level will spur prices towards RM2220 (61.8% FR) and RM2250 before reaching our LT objective at RM2280 (76.4% FR). Supports are situated at RM2157 (38.2% FR), RM2142 (100D SMA) and 2113 (23.6% FR) zones.

Source: Hong Leong Investment Bank Research - 22 Mar 2019