KLK, PPB among top decliners as crude oil slump weighs

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KUALA LUMPUR (Jan 13): Plantation companies Kuala Lumpur Kepong Bhd (KLK) and PPB Group Bhd were among top decliners on unease that slumping crude oil prices would dampen CPO demand for biodiesel production.

Reuters reported that US crude oil for February delivery was down 25 cents at US$45.82 a barrel today after settling down US$2.29 at US$46.07 on yesterday.

Today, KLK declined 1.2% or 26 sen to settle at RM22.04 at 12.30pm with a total of 154,400 shares changing hands.

PPB fell 12 sen or 0.8% to RM14.12 with 142,800 units traded.

KLK and PPB's decline came at a time when Malaysian palm oil output and inventory have declined, as floods curtailed oil palm harvesting.
Yesterday, Malaysian Palm Oil Board data showed crude palm oil (CPO) production in December 2014 contracted 22.04% to 1.36 million tonnes from 1.75 million tonnes in November.

Palm oil inventory, comprising CPO and processed palm oil, fell 11.55% to 2.01 million tonnes, its lowest level in five months.

While analysts noted that the decline in palm oil inventory and weaker ringgit would nudge CPO prices higher, they said lower crude oil prices might not bode well for CPO demand and prices.

Malaysian CPO futures fell to RM2,337 a tonne at 11.58am while the ringgit weakened to 3.5780 versus the US dollar at 12.13pm.

In a note today, CIMB Investment Bank Bhd analyst Ivy Ng said said the research firm was concerned that weaker crude oil prices might dampen CPO demand as biodiesel production might not be cost effective.

“At the current Brent crude oil price of US$49 per barrel, we estimate a CPO biodiesel breakeven price of only RM1,200 per tonne against the current CPO price of RM2,331.

“We are concerned that the continuation of this trend may prompt governments to reconsider some of their biodiesel mandates,” Ng added.

She said if biodiesel mandate reviews coincided with seasonally higher palm oil supplies, it might lead to lower CPO prices in the second quarter of 2015.

JF Apex Research analyst Jessica Low said the research firm was forecasting CPO prices to stay flattish in 2015 as it expected low crude oil price to limit the CPO price upside.

Low said JF Apex estimated CPO prices to trade at an average of RM2,400 to 2,480 atonne in 2015.

“We expect CPO prices to trade below RM2500 per tonne should crude oil price stay below US$65 per barrel,” she said.

“The production of biodiesel could be negatively affected if the crude oil prices stay persistently low in 2015, as the low crude oil prices would make biodiesel program less economic viable," Low said.