Agri outlook: Rubber trends higher and edible oil recovers smartly

Tokyo Commodity Exchange (TOCOM) futures jumped to an over 1-week high yesterday, as investors stepped up buying on expectations that an export curb to be implemented by top producer Thailand next week will tighten the market. Thailand will cut rubber exports by 126,240 tonnes for four months after a delay in implementing a supply cut agreement with other regional producers, the country's state rubber agency said on Thursday. Oil prices rose on Thursday for the third day in a row as fears of supply disruptions amid heightened tensions in the Middle East overshadowed swelling U.S. crude inventories. However, lingering worries over the U.S.-Sino trade war continues to be a concern . Physical Rubber prices in India showed firmness as well in line with international prices due to improved demand from domestic stockists against ongoing supply crunch in the market.

Searing heat in China’s southwest is causing havoc in the world’s largest rubber futures market after forcing the nation’s top plantation owner to cease tapping. The heat wave scorching Yunnan province, which supplies half the country’s natural rubber production, has created hazardous working conditions and raised the risk of pests, prompting to stop tapping this week.

China is a significant producer of natural rubber, with output of about 800,000 tons in 2016, though it’s the largest consumer and importer. The world produces about 14 million tons of natural rubber annually, according to the International Rubber Study Group.

US president, Donald Trump is expected to delay a decision on imposing tariffs on imported cars and parts by up to six months, avoiding opening another front in his global trade battles. General Motors Co, Volkswagen AG, Toyota Motor Corp and others have warned of the damaging impacts of imposing tariffs of up to 25 per cent on imported cars and parts. The White House has held a series of high-level meetings on the issue in recent days, and administration officials have repeatedly told automakers they planned to delay the decision. An auto industry research report released last year estimated that U.S. light-duty vehicle prices would increase by $2,750 on average, including US-built vehicles, reducing annual U.S. sales by 1.3 million units and forcing many consumers to the used-car market.

PRICE DIRECTION

If not for the trade war, Rubber futures could have taken off even higher . After a prolonged fall, beginning from the high of 379 Yen/Kg from early 2017, charts and technical analysis, hints at more upside to come for TOCOMM Rubber futures the benchmark. Potential targets for RSS 3 are around 230 yen/Kg followed by 250-55 Yen/Kg in the coming weeks. Hedging opportunities could emerge around here for industry players. Any declines are expected to find support around 185-190 Yen/Kg now.

BMD PALM OIL FUTURES

Palm is up 5.5 per cent so far for the week, on track for its first weekly gain in four. Overseas Soyoil prices also recovered after U.S. President Donald Trump eased concerns over the U.S.-China tariff war. Good demand also lifted prices, which hit one year lows recently.

Malaysian palm oil shipments rose between 4% and 15% during May 1-15 from the corresponding period last month, according to data from three cargo surveyors, Amspec Agri Malaysia, Intertek Testing Services and Societe Generale de Surveillance.

However, Solvent Extractors Association (SEA) has reported that India's palm oil shipments dipped by 9.17% to 7,07,450 tonnes in April 2019 compared to last year same period's 7,07,450 tonnes. More than 60 per cent of the country's total vegetable oil shipments accounts to palm oil. Loosing market share in India to other oils and favourable weather conditions so far for the domestic crop however continues to cap upside attempts.

Over the past one year, prices of various edible oils, including crude palm oil and refined soya oils, have gone down in the range of 11-20 per cent globally, due to excess supply in the world market.

With the European Union’s decision to suspend CPO as a bio-fuel, supply from major producers such as Indonesia and Malaysia is now coming to countries like India and China, that have a deficit. A 6-per cent depreciation in the rupee over the last one year has also restricted the benefit of global price decline to Indian consumers.

PRICE DIRECTION

BMD Futures finding support around the previous bottom of 1940 MYR/ton levels, hints at a possible double bottom formation, an indication of a bottom that has already been made. As per the pattern, it could test 2345 MYR/ton in the medium-term. However, there are significant resistances around 2170,2200 and 2230 MYR/ton levels, before we get there. Unexpected decline below 2000 MYR/ton, could however revive bearish hopes for 1865 MYR/ton or even lower, which is not our favoured view.

(The author is the Director of Commtrendz Research and these are only  guidance for prices. He is not liable for any gain/loss arising out of it.  He can be reached at gnanasekar.t@commtrendz.com.)