Published November 20, 2008

Commodity stocks suffer losses for a second day

Straits Asia, Noble and Olam plunge more than 12%; key commodities index falls sharply

By CONRAD TAN

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MAJOR commodity-related stocks here were pummelled for a second day yesterday as investors fretted over slowing economic growth and falling demand worldwide for energy, metals and agricultural resources.

Shares in Straits Asia Resources, which owns two coal mines in Indonesia, plunged 14.5 cents or 19.3 per cent to 60.5 cents, extending its two-day loss to 25.3 per cent.

Chief executive Richard Ong bought one million shares in the open market at an average price of 67.6 cents yesterday, raising his direct stake in the company to 0.592 per cent from 0.501 per cent, according to a Singapore Exchange exchange filing. Straits Asia's shares have slumped 80.6 per cent this year.

Olam International, which supplies agricultural commodities worldwide, saw its shares fall 12.3 per cent to 93 cents, extending its loss since Monday's close to 23.8 per cent. Since the start of the year, its shares have fallen 66.9 per cent.

Shares of Hong Kong-based Noble Group, which manages the global supply chains of various raw materials in food, energy and metals, fell 14.9 per cent to 74 cents, down 23.3 per cent in the past two days. The shares are off 63.5 per cent this year.

In a report yesterday, Credit Suisse analyst Haider Ali cut his target price for Straits Asia to $1.20 from $1.25, while keeping his 'neutral' rating on the stock, citing lower estimates of coal production in the next two years due to a delay at one of its mines.

And earlier this week, Merrill Lynch downgraded its rating on Olam to 'underperform' from 'neutral' and slashed its target price for the stock to $1 from $2.60, after Olam's management said it would cut the proportion of debt on its balance sheet.

This means Olam's aggressive pace of growth in recent years will have to slow, said Merrill Lynch analyst Chong Han Lim. 'By our estimates, the reduced gearing would lower sales-generating potential 30-40 per cent. The revision appears voluntary, but the company is probably making the announcement ahead of the inevitable - bankers tightening lending standards.'

Prices across a broad range of commodities have been hurt badly by a severe deterioration in the global economic outlook, which has triggered fears among investors that the earnings of companies such as Noble and Olam will suffer.

The Reuters/Jefferies CRB index, a global benchmark for commodity prices, fell on Tuesday to its lowest close since Sept 26, 2003. The index, which tracks 19 commodities including aluminium, crude oil, gold and soya beans, has collapsed almost 50 per cent from its all-time peak on July 2 this year, as the financial crisis wreaked havoc on the world's biggest economies.

Physical trade of commodities has also been damaged by the seizing up of credit markets, with firms finding it harder and more expensive to get letters of credit - a common method of payment for goods in international trade - as banks shy away from guaranteeing payments.

International trade is expected to slump 2.5 per cent next year, the first decline since 1982, hurt by shrinking demand and a sharp contraction in trade finance, the World Bank warned last week.