After peaking at RM2344 (7 Feb), FCPO slid 16.3% to a low of RM1960 (13 May) before rebounding 3.8% at RM2034 yesterday, tracking bullish soybean prices and weak ringgit coupled with expectations of another low stockpile in June. Our plantation analyst believes FCPO may strengthen near term, supported by Malaysia government’s recent move to set up a special joint committee to monitor and smooth implementation of B20 biodiesel by 2020, together with the Indonesian government made the use of B20 fuel mandatory. Nevertheless, long term outlook remains challenging due to ongoing trade war between US and China as well as EU’s publication of limits on the use of palm oil in biofuels. Technically, a decisive breakout above short term downtrend resistance near RM2050 will spur prices higher towards RM2100-2144 zones.

B20 biodiesel move. Malaysia government’s recent move to set up a special joint committee to monitor and smooth implementation of B20 biodiesel by 2020 (which will in turn boost palm oil consumption), coupled with the Indonesian government made the use of B20 fuel mandatory.

Outlook remains challenging. Long term outlook remains challenging (still trapped in the long term downtrend channel) due to ongoing trade war between US and China (sparkling concerns on slower global economic activities, hence affecting demand for vegetable oils including palm oil), as well as EU’s publication of limits on the use of palm oil in biofuels.

A decisive downtrend line breakout will lift prices higher towards RM2100 territory. The recent double-bottom pattern and bottoming up daily indicators could lift prices higher to break immediate downtrend line resistance at RM2050. A strong breakout above this level will spur prices towards RM2070 and RM2100 before reaching our LT objective at RM2144 (200D SMA). Supports are situated at RM2000, RM1980 and 1960 (52W low on 13 May) zones.

Source: Hong Leong Investment Bank Research - 18 Jun 2019