Palm oil: technical & fundamental tug of war

This time again the market waited eagerly for the annual Indonesian Palm Oil Conference and Price Outlook as palm oil has been able to catch great attention in the global market. The conference details about the palm oil price forecast and market dynamics for the upcoming year. Earlier this year, Eurozone uncertainty has led to a retreat in the palm oil futures. However, the Malaysian Palm oil stocks have fallen for a second consecutive month In November on account of major Southeast Asia producers, Indonesia and Malaysia, entering the La Nina weather phase. While Eurozone crisis is surely a damper for the palm oil industry, the weather conditions are expected to tighten supply and thus boost prices. Although, the insatiable demand from the top consumers of palm oil, China, has been capped by the cancellation of early import orders, consumption is likely to drive exports of the palm oil producing regions. The GAPKI Conference on the palm oil outlook has been a proponent of the wave movement of the sector with low production sentiments due to seasonal decline in yields. The 2012 outlook for palm oil indicated a flatter Indonesian palm oil production of 26.6 million tones compared to 25.2 million tones for the previous year. This has resulted in short supply and tight demand. However, the incremental demand is forecasted to be higher than the supply leading to high prices. The analysts outlook for 2012 has a bullish inclination primarily because of the building up of Monsoon weather in the palm oil producing countries once again in the coming month of January. With normal demand expectations, the coming year eyes a tug of war between bullish fundamentals and vague macro economic situation. A noteworthy point emphasized at the conference was the linkage of vegetable oil prices to petroleum prices in addition to the palm oil stocks. It is seen that the crude oil prices and palm oil prices move hand in hand. A deviation from the price band by palm oil is corrected immediately to close the gap. The CPO futures are expected to climb to 3,300 Ringgits and touch a level of 4,000 Ringgits by the middle of 2012. In related markets, the South American soya oil market has witnessed declining demand amid the European debt crisis and US deteriorating macroeconomic indicators. While the expectation of rains offer support to the palm oil prices and the soya oil prices, the market is more likely to be affected by higher crude oil prices and the threat of contagion that can take away the bullishness of the commodities.