Wednesday December 15, 2004 - PROSPECTS for the plantation sector appearmixed in a scenario of rising palm oil stocks, seasonally low production,and firm outlook for exports and prices.
Analysts generally expressed concern over rising stocks ( 1.414 milliontonnes as at the end of last month ) the highest level after the 1.495million tonnes in February 2001.
In addition, expectations of a record soybean harvest this year continueto weigh on crude palm oil (CPO) prices going forward.
OSK Research, which maintains an 'underweight' call on the sector, saidstock levels continued to pile up due to production outpacing exports.
"Rising inventories will cap (CPO) prices," an analyst with the researchunit said, adding that prices had been flat over the past few months,though holding above the RM1,400 psychological mark. "While the CPO pricemay not be trending down, it has certainly not started a bullish trendyet".
The unit expects the CPO price to average RM1,450 a tonne next year, about12% lower than this year's average price target.
Mayban Securities, however, has an "overweight" stance on the sector. Itsaid CPO stock levels might increase further, but not excessively. Palmoil stocks rose by 4% last month, from 1.36 million tonnes in October.
Mayban Securities, in its recent notes, said palm oil stocks, which hadstayed above the one million tonne level since April this year, were stillnot indicative of flushed supplies.
"We believe exports will remain firm till the next quarter given theanticipated lower production," it added.
The research unit expects its full year average CPO price target ofRM1,600 a tonne to be intact. The year to date average CPO price ofRM1,680 per tonne is 8% higher than the average registered during thecorresponding period last year. For next year, Mayban Securities maintainsits average CPO price target at RM1,600 a tonne.
On a cumulative basis, palm oil exports remained firm this year, withexports to the two largest importers, China and the European Union, up by8.5% and 11.4% respectively, and with Jordan and the United States showingtremendous growth.
The research unit said the firm exports to the EU were believed to belinked to the stance against genetically modified organisms, prevalent insoybeans.
“We are not overly concerned at the slowdown in exports to China lastmonth, as it has been aggressively importing over the last few monthssince the restriction on soybean imports in August," it added.
In stock valuation, Mayban Securities maintains a "trading buy" on GoldenHope Plantations Bhd due to its potential earnings from the injection ofAustral Enterprise Bhd's plantations and attractive dividend yield.
PPB Oil Palms remains its favourite pick in the sector. The research unithas a "hold' recommendation on IOI Corp Bhd, Kuala Lumpur Kepong Bhd andKumpulan Guthrie Bhd. OSK Research meanwhile maintains its "neutral" callon IOI Corp, KL Kepong and PPB Oil Palms Bhd.