Plantation stocks dip although lower inventory seen driving CPO price

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KUALA LUMPUR (Jan 2): Index-linked palm oil plantation stocks weighed the FBM KLCI down on the first trading day of 2015, as floods in the east coast of Peninsular Malaysia is seen to adversely impact short-term crude palm oil (CPO) supply.

As at 11.42 am, leading the sector-wide decline were larger  capitalised counters including Kuala Lumpur Kepong Bhd which shed 92 sen or 4.21% to trade at RM21.88 and PPB Bhd Group Bhd which lost 42 sen or 2.94% to RM13.88.

Also, United Plantations Bhd was down 66 sen or 2.7% to RM23.74, Sime Darby Bhd declined 15 sen or 1.63% at RM9.04 and IOI Corporation Bhd lost 6 sen or 1.25% to RM4.74.

Felda Global Ventures Holdings Bhd extended its losing trend by shedding another 6 sen or 2.75% to trade at RM2.12.

The decline followed a recent announcement by Plantation Industries and Commodities Minister Datuk Amar Douglas Uggah Embas, that Malaysia’s CPO production in December was going to be hit by between 15% to 20% due to the East Coast floods.

PublicInvest Research said lower CPO production was likely to drag down the CPO inventory to two million metric tonne (mt) from 2.2 million mt in November, unexpectedly disrupting CPO supply in the short term.

“The worst flood along the East Coast due to the monsoon season has affected the fresh fruit bunch harvesting and milling activities as well as transportation," it said.

The flood situation in Kelantan, Terengganu, Pahang, Perak and Johor, which collectively accounted for 40.8% of Malaysian palm oil plantation, has improved yesterday.

The five states contribute about 44% of total CPO production in Malaysia.

“We think that it could take at least one to two months for production to normalise” said the research house.

According to a remisier with a local investment bank, lower inventories usually drive up CPO prices and earnings of palm oil plantations companies.

He attributed the lower plantation-linked stocks’ prices today to weaker sentiment among retailers.

“One of the reasons for such a sector-wide decline in stock prices is that retailers are under-informed about the impact of the floods in the East Coast.

The sell-down is a sign of fear and negativity among some retail investors,” he said.