CPO extends gains with speculated vegetable oil shortage

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KUALA LUMPUR: Crude palm oil (CPO) prices on April 20 extended gains on speculation that growing demand, drop in palm stocks and a slowdown in supply growth may lead to a shortage in the vegetable oil. ECM Libra Investment Research said low stock levels had boosted the current rally in CPO prices as there were talks of possible supply issues in the industry.“The soy market had positive price developments as well that nudged CPO prices along as the US Department of Agriculture (USDA) revised down its Argentinean output forecast due to drought damage and the farmers’ strike,” ECM Libra said on April 20.It maintained an overweight stance on the sector, adding that there could be some profit taking at current levels. Palm stocks, according to the Malaysian Palm Oil Board (MPOB), fell 13% to 1.36 million tonnes in March, the lowest since July 2007. According to a Bloomberg report, independent cargo surveyor Intertek said CPO exports from Malaysia probably rose 4.2%, to 754,129 tonnes in the first 20 days of April. CPO futures for July delivery on the Bursa Malaysia Derivatives gained RM11 to close at RM2,446 a tonne on April 20. CPO prices had surged 42% since the beginning of the year. A CPO trader told The Edge Financial Daily that prices of the commodity could be trading between RM2,600 and RM2,800 in the immediate term. “The CPO market will be buoyant with palm end-stocks coming down. Market was also higher on covering up of short positions,” he said. A short covering occurs when short sellers buy the same type and number of securities that had earlier been sold short. Generally, traders cover their shorts when prices were expected to rise or actually rise. ECM Libra said a slowdown in supply growth was also expected in Malaysia’s palm sector owing to a lower production yield as a result of the lagged effect of a dry spell that occurred in 2007.“Also, 2008 was a bumper year, with production growing by 11% year-on-year. Usually palm trees will move into a resting phase after a strong production period. As such, we are projecting smaller supply growth of 7.2% in 2009, versus 11% in 2008,” it said. The firm had buy recommendations on Sime Darby Bhd, Boustead Holdings Bhd, TSH Resources Bhd and Asiatic Development Bhd, while maintaining a hold call on IOI Corporation Bhd. It has a sell on Kuala Lumpur Kepong Bhd (KLK). Sime Darby ended five sen higher at RM6.45, KLK gained 10 sen to RM11.30, Asiatic rose six sen to RM4.86 while IOI put on two sen to RM4.28. Boustead and TSH each lost four sen and five sen, respectively to RM3.58 and RM1.62.