KUALA LUMPUR (May 20): Plantation stocks started the trading day on a soft note as most of the index heavyweights were lower on Friday (May 20) morning after the news the Indonesian government will be lifting the ban on palm oil exports on May 23.

The drop in plantation counters' share prices has dragged down the Bursa Malaysia Plantation Index in the broader market. 

At the time of writing, the Bursa Malaysia Plantation Index declined by 33.04 points or 0.4% to 8,204.29.

Index heavyweights such as Sime Darby Plantation Bhd traded six sen or 1.15% lower to RM5.17 while IOI Corp Bhd was unchanged at RM4.39.

Meanwhile, Kuala Lumpur Kepong Bhd dropped by 10 sen or 0.37% to RM26.80. 

On Thursday, Bloomberg reported that Indonesia, the largest shipper of edible palm oil lifted its export ban on the commodity after considering improvements in local supply and prices, as well as the 17 million workers in the industry, citing President Joko Widodo. 

Widodo had also expressed his confidence that local cooking oil prices will become affordable in a few weeks’ time. 

He added the government will improve regulations and procedures for its palm oil export funds, so that it can be more adaptive to domestic supply and prices.

Indonesia’s ban, which was imposed since April 28, was one of the biggest acts of crop protectionism since Russia’s invasion of Ukraine which had stymied exports of sunflower oil and worsened a global shortage.

UOB Research in a note on Friday highlighted the lifting of the export ban would be good news to Indonesia players as most are seeing their tanks being filled up fast with strong production.

The research house also opined that it is not expecting a big downward adjustment to crude palm oil (CPO) price with this announcement as the market is well aware that this ban was always going to be temporary and the recent weakness in CPO price could have factored this in.

“We reckon that Malaysia plantation companies would still be the largest winners as they are able to sell their CPO at high spot prices, which should translate into higher profit margin in 2Q22, coupled with higher production year-on-year and quarter-on-quarter.

“For Indonesia players, the lift is a big relief but they have missed the high CPO price period (Feb-Apr 22) when Indonesia palm prices were trading at a larger discount to Malaysia with all the export control policies since late-Jan 22,” it said.

UOB also shared that it has maintained its "market weight" call on the plantation sector as it prefers companies that are able to deliver a better set of results supported by good production growth or ability to deliver better profit margin from higher realised average selling prices.