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Indonesia and Malaysia, the world’s top producers of palm oil, increased the mandatory amount of the palm oil that needs to be blended in biodiesel this year. This has taken the crude palm oil price higher. Bursa Malaysian crude palm oil future, the global benchmark for crude palm oil, has risen 12.5 per cent this year. On the other hand, the price rise in the Indian MCX derivatives has been much higher due to strong depreciation in the rupee.
The MCX crude oil futures contract has risen 29.5 per cent this year. Increasing demand from the global biodiesel industry is expected keep the crude palm oil prices higher.
DEMAND & SUPPLY There has always been an over-supply in the global palm oil market. Data from the US Department of Agriculture show that the global palm oil production in the crop year (Nov.-Oct.) 2012-13 increased 7.4 per cent to 55.8 million tonnes from 52 mt in 2011-12. The global demand increased 6.8 per cent to 54.53 mt in 2012-13 from 51 mt in 2011-12. However, the increasing demand from the biodiesel industry is expected to narrow down the surplus situation next year.
The US Energy Information Administration forecasts the biodiesel production to increase by 27 per cent in 2013 and 2014 to 80,000 barrels a day from 63,000 barrels a day in 2012.
India consumes about 15 per cent of the global palm oil and is the world leader. Though the imports fell by 2 per cent in the crop year (Nov.-Oct.) 2012-13 due to high reserves, data from the Solvent Extractors’ Association of India show that imports increased in November by 3 per cent. As India largely depends on imports to meet its domestic demand, weak rupee could keep the domestic price higher.
Long-term view: The MCX crude palm oil contract is in an uptrend since 2009. Strong trend support is at Rs 450. While above this support, the long-term outlook remains bullish and the contract can target Rs 700 over this time period, intermediate resistance is at Rs 650. The uptrend will reverse only on a strong decline below Rs 450. Targets below Rs 450 will be Rs 380 and Rs 300. However, there is less probability for the contract to decline below Rs 450 as of now.
Medium-term view: The medium-term trend is up for the MCX crude palm oil contract. Within this uptrend the contract is now consolidating sideways over the last few months. The 21-month moving average support, currently at Rs 507, is a key medium-term support. While above this support, a rally targeting Rs 650 looks likely in the medium-term, if the contract falls below the 21-month moving average support, it can test Rs 450.
Short-term view: The MCX crude palm oil contract is consolidating sideways between Rs 510 and Rs 585 since September. A breakout on either side of this range will decide the short-term trend. Short-term targets on a breach of Rs 585 will be Rs 635. On the other hand, the contract can target Rs 470 on the downside if it declines below Rs 510.
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