CPO Industry

The high valuation of Malaysian plantation counters compared with their historical trading range has not deterred investors from ploughing money into the stocks as CPO prices trend higher.

With production going into low season, weather factors and the acceleration of biodiesel mandates in Malaysian and Indonesia, CPO prices could move higher.

There are number of key factors that could push CPO prices to reach 2700 per tone by March or April 2014.

Inventories are lower than expected earlier and then there was the biodiesel announcement in Indonesia. In Indonesia, under the Energy and Mineral Res, varios sectors including transport sectors including, industry and energy raised their minimum use of biodiesel in Sept 2013.

A third factor is the weaker support for biodieel from the US and the European Union, which would narrow oilseeds’ premium over CPO, making former more competitive.

Historically, if the gap gets narrower, users switch for food away from palm to these other oils. That’s what is going to slow the decline in palm oil stocks. So while there is upward pressure on CPO prices, it will be limited by the switch to oilseeds.

Poor rainfall in important production regions in Indonesia has affected production in 2013 and this is expected to spill over to 2014.

There are also restocking in China ahead of the CNY...

Typhoon Haiyan, which destroyed a sizeable area of coconut crops in the Philippines has also pushed CPO prices higher.

Technically, the CPO prices broker through the rm2500 level. Supported is at rm2500 and resistance is rm2700 to rm2800.

Genting Plantations is now (Nov 2013) trading at 20.9 times. TSH at 18 times and KLK at 22 times.