Wednesday, October 17, 2012

Where are the drop in palm oil counters?

Usually, whenever there is a significant drop in oil palm prices, plantation sector in Malaysia will follow. This time around, it's different.

See below for the drop in oil palm prices which has peaked from above RM3,000 per MT to around RM2,400 now.

In USD - 1 USD = 3.05 RM

However, the few plantation stocks which I follow do not really drop as per what I have hoped. See below for IOI, Sime and KLK's pricing. Of course, KLK is more of a pure palm oil company while Sime and IOI have other sectors contributing largely to the performance. Nevertheless, you will note that property prices is stagnating as well, which signals that there should be drop in the overall prices of these counters - it does not happen. As it is, it does not appear that there would be opportunity from a massive drop in these plantation companies other than taking opportunity off from palm oil futures itself.

The movement of the above counters looks more like a minor correction than tracking the prices of palm oil which has dropped more than 20%. Now the question that begs is what causes the prices of these companies to continue to be doing well. It is the hope that oil palm prices will rebound. Will it be rebounding so fast?

I have read of contradictory opinions on the Malaysian palm oil industry. Although the sector continues to be seen positive in the future, Malaysian palm industry is facing competition like never before. I have purposely penned an imaginary a story which of course is not real. These does however indirectly depict the situation faced by Malaysian companies. I personally have met Malaysian companies who faced problems expanding in Indonesia despite having bought land there - from labor to regulators. If not, why would Tabung Haji be selling its land in Indonesia since few years ago?

We have problem expanding our planted acreage, while continue to be facing smart strategic decisions from Indonesia who continues to put downward pressure on Malaysian exports. Indonesia, no doubt is providing incentives to promoting its refined palm oil to the extent that we are facing a overstocking situation. Indonesia's  No 1 position as an exporter is continuing to widen against Malaysia.

Although we are seeing a huge gap between prices of other types of seeds oil like soy and rapeseeds as compared to palm, the prices of palm oil is yet to rebound. Why? Indonesia will continue to have more acreage planted. I have read of the challenge for the world in feeding the booming middle class in future. These will definitely be positive for any edible oil.

Now, the question that begs is with just a slight drop in these plantation counters, is it time to buy or are investors being too bullish that oil palm prices will stage a fast immediate rebound?


FreeMan_自由人 said...

Me too, I'm selling CBIP & MHC month ago.
And hoping for a buy back, but so far didn't see any BIG drop on Palm Oil counter.
#Now holding MBL for the right issue rally, if any.

Winnfield said...

felicity, what is your opinion on TDM?

felicity said...

cheap, that's all but hard to think of it as an exceptional stock

Gark said...

The market is flushed with palm oil... most palm oil mills storage tanks is mostly full, as buyers are shrinking.

However refinery are doing very well, especially those who are based in Indonesia.

Gark said...

There is about 30K-40K ton per DAY refining capacity coming up in Indonesia alone within the next 12 months. This will help with the current CPO excess capacity, and most refiners sees a shortfall of CPO supply sometime in 2Q-4Q 13

felicity said...

Just read through this, Malaysian Palm Oil will feel the scare