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My Market Observations

Author: skoh888   |   Latest post: Tue, 16 Aug 2022, 7:26 PM

 

Crude Palm Oil Price Is Set For A New Rally

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Crude palm oil futures (CPO) active month futures contract closed at RM3878 on Friday, down 9.4% week on week. However some metrics which I follow seems to suggest that the CPO price may have bottomed and are set to have a nice rally from here on till year end.


Divergence from crude oil price

Friday saw some some price divergence between crude oil and CPO price. Typically they move in tandem because of the biodiesel correlation between the two commodities. So when crude oil broke and stayed below USD90, it usually means a big negative for CPO price. However CPO futures managed to buck the trend and closed up 2% for the day at RM3878.


Forward spread curve 

Another big mover on Friday were the nearby contracts on the CPO futures vs the deferred contracts. What this means is that people are viewing that the nearby contracts are likely to appreciate more than the far months or what traders term as bull spreading. This is a bullish signal that the underlying price of the commodity could be nearing a bottom of the cycle and about to reverse direction.


MPOB monthly data released next week

Key data will be released next week by the MPOB monthly demand and supply of CPO. It is expected to be a bearish number as expectations are for monthly production to increase by between 2% to 2.8% while end stocks are expected to swell by between 7% to 10% according to polls done by Reuters, Bloomberg and CIMB Research. This is expected since we are entering peak production for CPO between August to October. What should be noted that despite this CPO futures have stayed comfortably above the RM3500 levels hit in mid July 2022.


Time to buy plantation stocks and long the CPO futures

I have turned bullish on CPO futures and plantation stocks as of Friday. I am long the CPO futures contract and also bought a basket of plantation stocks on Friday. I do not have price targets but I will follow the trend as long as my stop losses are not violated.


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  4 people like this.
 
anthonytkh Heh, my remaining 92.3k TSH units @ avg 1.065 is still a test of patience for me. Thanks for the article, buddy
07/08/2022 1:57 PM
skoh888 @anthony....Hi bro, hope you are having a nice Sunday afternoon sipping your favourite beverage!
07/08/2022 2:02 PM
anthonytkh Too early for both our favourite beverage!
07/08/2022 2:09 PM
StingRay looking good but will be a bumpy ride for TSH for now. make sure you put on your seatbelt. hahaha.
07/08/2022 2:12 PM
skoh888 CPO futures up over3% and trading above RM4000 again. Let's see if plantation stocks get a bid
08/08/2022 10:36 AM
Raymond Tiruchelvam Nice article, but basic economics of demand (pretty much same), supply (will be higher in coming good season months) and substitutes (conola, soy etc), will play in key role in the pricing mechanism. The fact remains that CPO companies will show bumper profits in the Q2 announcements, and hope this will help bump up the prices a little at least in anticipation of continued profits which will be tough. If the price can hold above RM3,500 till year end, that alone will be a bonus. Happy hunting ..... boys
09/08/2022 1:55 AM
skoh888 Hi Raymond hope you are doing well...yes it's a tough space to be in( plantation stocks) since we are still grappling with peak earnings. Probably easier to just long a CPO contract than to buy plantation stocks
09/08/2022 9:59 AM
stockraider Now above Rm 4,000 better margin mah!
09/08/2022 4:05 PM


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