Crude Palm Oil (CPO) Fundamental and Technical Analysis

UOB Kay Hian issued a plantation “underweight” for Malaysian CPO producers today. Sentiment is weak as we enter 2013, here’s why:

• High inventory is adding onto high supply. Malaysia’s CPO inventory at record high of 2.53m tonnes or 1.4 months of production (vs average 1.2months for the past 10 years)
• Weak global demand from the largest 3 importers China, India and Europe 
• “Export tax wars” between Malaysia and Indonesia – buyers may delay purchases to take advantage of any arbitrage

So we have weak demand, strong supply and a buyer’s market causing over 40% drop in CPO prices in less than a year.

The chart above plots the price action of CPO for the past year (price is the blue line). The great thing about Ichimoku analysis is you will never miss out on big trends and more importantly, you are kept in the trade as long as the strong trend is in play.

In May 2012 we saw price break below the Kumo (purple cloud) and prices have been on a downhill since then, not even testing the Kumo top resistance, until recently. We will be looking for a break above the Kumo top for any bullish activity. Once broken, we can look for a bullish move towards the black horizontal line, which is an extension of the Kumo shadow.

The future kumo extending into February is thin, suggesting weak support/resistance with a flat kumo top as price equilibrium. A very strong support will be the low of RM2,026.50. Resistance will be at the kumo shadow extension of RM2,550. CPO price will likely trade within this range for the first half of 2013.