Published October 7, 2008

M'sia plantation shares fall as CPO futures dive

Dec contract drops on estimated surge in palm oil stocks

By PAULINE NG
IN KUALA LUMPUR
Email this article
Print article
Feedback

PLANTATION companies were among the biggest losers on the Malaysian stock exchange yesterday, as crude palm oil (CPO) futures dived more than 10 per cent.

The December crude palm oil futures contract dropped RM200 (S$83) to RM1,800 a tonne in the morning on an estimated surge in inventory and the spillover effects of weak soyoil and crude oil prices.

Among the plantation counters that were mauled, Kuala Lumpur Kepong shed more than 7 per cent to RM8.35, IOI Corp lost 4 per cent to RM3.94 and Asiatic gave up 5.4 per cent to RM4.24.

Given their heavy weighting in the Kuala Lumpur Composite Index, the market was dragged down 19.86 points or almost 2 per cent to 996.84.

CPO prices have sunk more than 60 per cent since March when they peaked at RM4,486 a tonne. The extent of the plunge has taken many by surprise, as evidenced by reported cases of default on CPO contracts.

'For this year, prices have gone,' said an analyst who did not want to be named. 'Because of the collapse in CPO prices, some buyers prefer to just default. And every time there is a default, prices just go down.'

Based on her house estimate of oil prices averaging US$100 a barrel next year, she has revised her CPO price estimate to RM2,900 a tonne from a previous estimate of RM3,300.



'Even so, it depends on oil prices not collapsing,' she cautioned. Oil is currently trading at around US$90. Although September and October are traditionally peak months in the CPO production cycle, local inventories have fallen from a record of slightly over two million tonnes in June to 1.85 million tonnes in August.

Still, traders remain concerned over a supply and demand mismatch, given aggressive planting in Indonesia in recent years. In Malaysia, CPO production is also on the rise and expected to jump 11 per cent to 18 million tonnes next year, compared with an annual average jump of 4 per cent in the past four years.

In the current cycle, some plantation stocks have proved more resilient than others. In a note to clients, Hwang-DBS Vickers observed that in the past 12 months, Perlis Plantations has lost a smaller quantum of 26 per cent, compared with a decline of 42 per cent for the Malaysia Plantations Index. The conglomerate's earnings were 'less cyclical', thanks to stable contributions from Wilmar, as well as its sugar and flour divisions, the broking house said.