Plantation stocks rally as palm oil futures hit RM2,901

KUALA LUMPUR: Share prices of mid-sized and small plantation companies leapt as palm oil futures on Bursa Malaysia Derivatives Market closed at a high of RM2,901 per tonne yesterday.

Heavyweight plantation counters like Sime Darby Bhd, IOI Corp Bhd, Felda Global Ventures Holdings Bhd, Kuala Lumpur Kepong Bhd (KLK) and Genting Plantations Bhd have started to climb and experienced profit-taking dips.

This week, pure upstream counters with young tree age profile are seen to be the main beneficiaries of the recovery in palm oil prices.

When contacted by Business Times, Maybank Investment Bank Bhd analyst Ong Chee Ting reiterated his view that crude palm oil (CPO) prices will remain relatively resilient due to biological tree stress and as the industry enters into seasonally lower production months from February to April.

Latest numbers from the Malaysian Palm Oil Board showed slowing production amid stable palm oil exports. Yesterday, the industry regulator said palm oil inventory fell to the lowest level since July 2013 amid low production season.

As at end-February 2014, the palm oil inventory settled at 1.66 million tonnes, much lower than market expectations of 1.8 million tonnes.

"We reckon that palm oil prices will stay relatively high at RM2,800 to RM2,900 per tonne over the next two months as the stockpile is tight," Ong said. "Nonetheless, it is possible for palm oil prices to breach RM3,000 per tonne in the near term if the present weather condition does not improve over the next three weeks," he added.

JF Apex Research, in its research note, said it is concerned that the prolonged dry spell in Malaysia could hurt CPO production in the mid-term. It maintained an "overweight" call on the plantation sector and its favourite counters include Genting Plantations, IJM Plantations Bhd and KLK.

Separately, RHB Investment Bank, in its notes to investors, noted the bullish tone of last week's Palm and Lauric Oils Conference & Exhibition: Price Outlook 2014 is further fuelling the current CPO price rally.

Most of speakers at the conference believed that there is still upside potential for palm oil prices, with projections of RM3,000 per tonne by mid-2014. Should El Nino occur, this may drive prices beyond RM3,000 per tonne.

RHB Investment Bank feel that prices are expected to average at around RM2,700 per tonne this year. "We maintain our 'overweight' stance on the sector. We are still at the early stage of a bull market as valuations are still inexpensive. Funds have only just started to flow into the palm oil sector," it said, adding that its top picks include IOI Corp and Jaya Tiasa Holdings Bhd.