Investors chase palm oil shares after bullish CPO price forecasts

PETALING JAYA: Plantation stocks were actively traded on Bursa Malaysia yesterday, following the bullish projection by world palm oil experts that crude palm oil (CPO) prices are set to reach the RM3,000-per-tonne level by the second half of this year.

Among the top gainers were Genting Plantations Bhd and PPB Group Bhd, which gained 30 sen each to RM11 and RM16.66, respectively, whileKuala Lumpur Kepong Bhd firmed up 26 sen to RM23.90.

Palm oil experts at the close of Bursa Malaysia’s palm oil conference on Wednesday concurred that the CPO price will reach the RM2,400 to RM3,200-per-tonne mark, citing the biodiesel mandates from Indonesia and Malaysia, the looming El Nino dry weather phenomenon, and the logistics bottleneck at oilseed-producing countries hampering supply as the CPO price drivers this year.

Renowned commodity trader Dorab Mistry of Godrej International Ltd has forecast that CPO prices would hit RM3,000 to RM3,500 per tonne “if the El Nino arises, but prices will still trade higher at RM2,600 to RM2,900 per tonne this year if this doesn’t take place”. UOB Kay Hian in its latest update has an “overweight” call on the plantation sector, “as we expect CPO prices to gain momentum on the back of slower supply growth and stable demand”.

Moreover, the commitment from the world’s two largest palm oil producers to increase domestic biodiesel blends will ensure the rise in palm oil supplies this year will be largely absorbed by the use of biodiesel, which, in turn, will keep palm oil inventory levels in check.

Hence, there is no change to the research house’s CPO price assumption of RM2,900 per tonne for 2014 and 2015. Industry players also expect CPO production to be affected by the current dry spell.

If the dry weather continues into end-March to April, this will affect fresh fruit bunch yields and production in the fourth quarter of 2014, 2015 and 2016, they noted.

At present, Peninsular Malaysia and parts of Indonesia, in particular Sumatera, have been experiencing very dry weather over the past six weeks.

Affin Investment Bank Bhd is maintaining its CPO price estimate at RM2,700 per tonne, with a “neutral” call on the plantation sector. The key upside risks to its recommendation include a stronger-than-expected recovery in the global economy, pushing vegetable and crude oil higher, a lower-than-expected soybean and palm oil production due to extreme weather conditions, and unforeseen changes in policies such as biodiesel mandates and land ownership.