Plantation stocks hit by expectation of high inventories

KUALA LUMPUR: Plantation counters on Bursa Malaysia were among the top losers yesterday on concern over the release of December’s crude palm oil (CPO) inventory data today by the Malaysian Palm Oil Board.

The expectation of high inventory levels, coupled with more stringent rulings on China’s palm oil imports, saw the Kuala Lumpur Plantation Index slide 103.7 points or 1.25% to 8,198.99 points at yesterday’s close.

“I expect December stocks to hit another record high at 2.58 million tonnes,” Jim Teh, senior palm oil trader at Interband Group, told The Edge Financial Daily.

However, OSK Research analyst Alvin Tai has a different view. “Production is already on the way down; the national biodiesel rollout has started to boost local consumption in the last two months; all these should start to absorb supply and taper inventory.”

China’s Inspection and Quarantine Bureau from Jan 1 began enforcing a set of 2009 technical specifications on the quality of palm oil imports. Those that do not meet these specifications will be turned away.

“Around 5% of palm oil shipments from Malaysia to China did not meet the specifications, based on information provided by the Chinese authorities to the Malaysian Palm Oil Board,” CIMB Research analyst Ivy Ng said in a note on Jan 3.

“This could impact as much as 175,000 tonnes of palm oil exported from Malaysia, and could cause the palm oil stock level to potentially rise by around 7% from the November 2012-ending stock of 2.6 million tonnes, if left unchecked by end-2013,” said Ng.

According to Teh, investors even in the EU remain cautious because as yet no palm oil deliveries have been made to China and there is “no news on whether any has been rejected”.

Nevertheless, Malaysian palm oil producers will not be as badly affected as those in Indonesia, said Tai.

“Indonesian [producers] will be more affected because Malaysian shipments typically are of higher standards. In Indonesia, a lot of old ships are used and their ports are inefficient, so by the time the oil arrives in China the quality is questionable,” said Tai.

However, a dealer said Indonesian palm oil exports may actually fare better than Malaysia’s due to aggressive marketing.

“If [Malaysian] exports cannot pick up fast enough, the negative impact on plantation stocks will continue,” he said.

Among the top losers yesterday were Kuala Lumpur Kepong Bhd (KLK), Genting Plantations Bhd (GenP), IOI Corp Bhd, Perlis Plantations Bhd (PPB) and Negri Sembilan Oil Palms Bhd (NSOP).

KLK lost as much as 48 sen or 2.09% to a low of RM22.46 before closing at RM22.62. GenP fell 27 sen or 2.97% to a RM8.82 low, closing at RM8.89. IOI Corp saw losses of 14 sen or 2.7%, closing at a low of RM5.05.

PPB and NSOP declined as much as 2.46% and 2.07% during the day, while big names Sime Darby Bhd and Felda Global Ventures Holdings Bhd fell as much as 1.35% and 0.43% respectively.

The benchmark March contract on the Bursa Malaysia Derivatives Exchange lost 1% to close at RM2,393 per tonne. Prices had earlier dropped to an intraday low at RM2,382, a level last seen on Dec 21.

 

This article first appeared in The Edge Financial Daily, on Jan 9, 2013.

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