RHB Research Neutral on plantations

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KUALA LUMPUR: RHB Research Institute keeps a Neutral recommendation on the plantation sector, but continue to highlight the trading opportunities available within the sector. “Based on current crude palm oil (CPO) prices, we believe there are trading buy opportunities for IOI Corp, Sime Darby and Asiatic,” it said in a research note on April 13. The research house said stock levels, after falling by 10%-11% per month for the last three consecutive months since January this year, Malaysia’s CPO production rose by 7.4% month-on-month in March while exports rose by a slight 0.2% month-on-month. Despite the relatively larger month-on-month growth in production versus exports, CPO stock levels declined once again by 12.9% month-on-month to 1.4m tonnes in March (from 1.57 million tonnes in February) as a result of the lower opening stock levels and import levels (down 80.3% month-on-month). It said recent industry developments (and its impact on prices) included the shift of attention in the US to crop planting conditions from planting intentions (positive); the end of the Argentinian farmers strike (negative); the impact of the lifting of soyoil import taxes in India (negative). As a result of the anticipated decline in production growth of soyoil and CPO, prices have risen in the last few weeks, while prices of rapeseed oil have declined due to the large rapeseed oil supplies and the disposal problems for biofuel. “The discount between CPO and soyoil has now widened again, while the discount between CPO and rapeseed oil is now below historical averages. If rapeseed oil prices continue to fall, it would become more competitive and could lead to more demand shifting to rapeseed oil, thereby garnering market share from soyoil, which could then see soyoil and CPO prices weakening again,” it said.RHB Research said main risks included a significant change in crude oil price trend; weather abnormalities resulting in an over or under supply of vegetable oils; increased emphasis on implementing global biofuel mandates and trans-fat policies; significant changes in trade policies of vegetable oil importing or exporting countries; and a faster or slower-than-expected global economic recovery. “We are currently reviewing our CPO price assumptions with an upward bias. However, at this juncture, we maintain our existing CPO price assumptions and earnings forecasts,” it said.