Kenanga research bullish on plantation sector

by **Cals** Mon 13 May 2013, 16:54

Kenanga research bullish on plantation sector
Business & Markets 2013
Written by Bernama
Monday, 13 May 2013 15:22

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KUALA LUMPUR (May 13): Kenanga Research is bullish on the PLANTATION [] sector and believes that the worst should be over for crude palm oil (CPO) prices as a sustained inventory decline should lend the prices strong support.

It said in a research note today that Malaysia's palm oil stocks declined 12 per cent month-on-month to 1.93 million tonnes, six per cent lower than the consensus' estimation of 2.06 million tonnes.

"Production turned out to be lower than expected as well, as it rose only three per cent month-on-month to 1.37 million tonnes due to an unexpected decline in Sabah's production," it said.

Looking ahead, the research house expects the May 13 inventory to decline by five per cent month-on-month to 1.84 million tonnes as the total demand of 1.59 million tonnes should exceed the total supply of 1.5 million tonnes.

Kenanga Research in a separate note said lower imports and higher domestic consumption have aided the palm oil inventory, bringing the level down by 11.3 per cent to 1.93 million tonnes in April 13.

However, it said, the inventory downtrend is unlikely to spur CPO prices significantly as the peak production cycle starting in October will likely bring the inventory level back up.

The research house maintains its average CPO price assumption of RM2,500 per tonne this year and RM2,600 per tonne next year on the back of higher palm oil production this year and demand risk due to uncertainties in the European Union and China.

Meanwhile, Alliance Research in another note said it remains cautious on export data in the coming months despite industry fundamentals improving in April.

"China has recently reported record-high palm oil inventories, and this together with news of India looking to cut back on cooking imports will keep CPO prices subdued in the interim," it said.

The research house has maintained a CPO full-year average selling price at RM2,600, expecting prices to pick up late in the third to fourth quarters, citing a risk of tree stress setting in after a long period of strong production.

Kenanga Research has upgraded the plantation sector to a "neutral" view while Hong Leong Research and Alliance Research maintain an "underweight" valuation on the sector. -- BERNAMA