Tuesday, November 17, 2009

A weekend assignment -- take a look at plantation sector.

Most plantation companies earnings dropped by half because of crude palm oil price dropped by half on flat output. The market seems like not wanting to price in a scenario of 10-20% increase in 2010(RM 2,400 - RM 2,500). While most brokerage houses singing melancholic tunes, I will want to take a look at some of the counters like Boustead, Hap Seng Plantation, Sarawak Oil Palm, Tradewind Plantation and KLK.

Nov. 17 (Bloomberg) -- Palm oil traded near an 11-week high as JPMorgan Chase & Co. said dry weather in Southeast Asia may curb production in the first half and after soybean oil jumped in Chicago, increasing the appeal of the tropical commodity.

“There’s some value in the palm oil-bean oil spread,” Tobin Gorey, a commodity analyst at J.P. Morgan Securities Ltd. in London, said in a report. The “deep discount for palm” reflects tightening supplies of soybean oil and more palm oil, and “those drivers will shortly go into reverse,” he said.

Palm oil for February delivery climbed as much as 1.5 percent to 2,370 ringgit ($705) a metric ton, the highest level for the most active contract since Aug. 28. It traded 0.4 percent higher at 2,346 ringgit by the 12:30 p.m. break on the Malaysia Derivatives Exchange.

Soybean oil for January delivery surged 2.9 percent to 40.18 cents a pound yesterday in Chicago, posting the highest close since June 4. That left soybean oil $193.59 a ton more expensive compared with palm oil, the widest premium since Oct. 22, according to Bloomberg calculations.

Seasonally, palm oil production has peaked while soybean oil supplies are just coming onto the market, and these factors will reduce soybean oil’s premium, Gorey added.

Malaysia, the second largest producer of palm oil, reported record production of 1.99 million tons in October, lifting stockpiles to a 10-month high of 1.97 million tons, according to the Malaysian Palm Oil Board Nov. 10.

Narrower Spread

Drier weather in Southeast Asia because of El Nino may “crimp” production of palm oil in the first half and lower yields in the second, potentially narrowing the tropical oil’s discount to soybean oil, the JPMorgan report said.

Soybean oil dropped 0.6 percent to 39.94 cents a pound at 2:04 p.m. Singapore time, narrowing the premium to $184.40 a ton, according to Bloomberg data.

“Global vegetable oil inventory levels are, if not tight, then lean,” Gorey added, referring to stockpiles of palm, soybean, rapeseed and sunflower oils. “It would not take big problems with oilseed crops to see inventory levels drop to tight levels.”

In China, the largest consumer of edible oils, May-delivery palm oil on the Dalian Commodity Exchange rose as much as 1.5 percent to 6,452 yuan ($945) a ton, and last traded at 6,414 yuan by the 11:30 a.m. trading break.

No comments: