Monday, August 25, 2014

Why Plantations Stock Kena SellDown !!!

Oversupply Issue …

Palm oil tumbled below RM2,000 a tonne for the first time in more than five years as forecasts for a record US harvest of soybeans used to produce an alternative oil threaten to curb demand.

Palm entered a bear market in July 2014 as favourable weather boosted the outlook for US soybean crops, estimated to be the largest ever. Futures also slumped as demand for biofuels missed expectations and forecasts for an El Nino weather, which can disrupt supplies, were scaled back.

The biggest supply for US soybeans is weighing on other oilseeds, and palm is indirectly affected by this.

Production in Malaysia may reach a record 19.7 million to 19.9 million tonnes, while Indonesia’s output may total an all-time high of 30.5 million tonnes or more in 2014. The two producers together account for 86% of world supplies.

Indonesian Restrictions …

Malaysian firms with large holdings in Indonesian estates may be significantly impacted by the country’s lawmakers plant to cap foreign ownership in oil palm plantations to a maximum 30% from the current (Aug 2014) limit.

It was still uncertain if the ruling would be retrospective, and whether the plantation bill would be passed.

The proposed law, firms will given five years to comply with the rules, and those that refused to comply may face fine, temporary suspension and the revocation of permits.

This uncertainty, coupled with the 100000ha in limitation rules, may lead to slower new plantings in Indonesia, and negatively impact future supply growth from the country.

The proposed foreign ownership limit may also spur affected firms to venture into other regions like Africa or Papua New Guinea or expand downstream.

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