7 July 2002 (Business Times) - MALAYSIA’S plantation sector is expected tocontinue the strong performance it recorded in the first six months ofthis year, based on shrinking supply and growing demand.

Analysts point to possibly an even better performance especially if theerratic global weather patterns continue to affect soyabean harvests.

“For example, palm oil exports to the European Union surged 54 per centlast year compared to the previous year and grew 31 per cent for the firstfive months of this year,” a sectoral analyst told Business Timesyesterday.

“And there is still room for the exports to grow as European consumers areswitching from animal oils to vegetable oils, an aftermath of the mad cowdisease,” she added.

Another analyst said demand from traditional consumers such as China isstill rising and may reach 1.4 million tonnes by year-end, out of the2.4-million-tonne quota allocated. “As at May, China has bought 728,831tonnes putting it well on track to meet the target,” he added.

Both analysts forecast palm oil prices to trade between RM1,250 andRM1,300 a tonne until year-end.

Stock-wise, an analyst recommends a “neutral” call on Golden HopePlantations Bhd, a “buy” on both IOI Corp Bhd and PPB Oil Palms Bhd and “accumulate” for Kuala Lumpur Kepong Bhd (KLK).

IOI Corp, a favourite among analysts due to its excellent management andagricultural practices, made a pre-tax profit of RM458.5 million in itsfinancial year ended June last year with an earnings per share (EPS) of34.6 sen.

PPB Oil Palms, meanwhile, made a net profit of RM47.2 million in itsfinancial year ended December last year for an EPS of 7.2 sen.

An industry observer, however, said production is expected to dip by 4 percent due to replanting and reduced usage of fertilisers. “To date, a totalof about 130,000ha has been felled, from an earmarked area of 200,000ha,which will eventually remove 470,000 tonnes from the market by year-end,”he said.

Also, a weak-to-moderate El Nino (a weather phenomenon) or a prolonged dryseason, which may develop later this year within the Asia Pacific region,would add to the supply crunch.

The Malaysian Palm Oil Association (MPOA), meanwhile, said in a statementthe current high prices of soyabean may ensure steady demand for thecommodity within the immediate term.

“Nonetheless, the palm oil price direction will very much depend on thismonth’s production and export trend, as well as a build-up of soyabeansupplies from Argentina,” it said.

Argentinian farmers may soon start to sell more soyabean oil to cash in onits weak currency with main buyers coming from India and China expected tobuy in August, it added.

On the Kuala Lumpur Stock Exchange, for the period from January 1 to June28, the Plantation Index gained 8.66 per cent compared with the CompositeIndex’s (KLCI) gain of 0.92 per cent. In terms of total returns, thePlantation Index appreciated 10.08 per cent compared with the KLCI’s 2.30per cent.

For the last six months, of the 35-listed companies in the PlantationIndex, Kulim Malaysia Bhd provided the highest return at 83.01 per cent,followed by IOI Corp (61.46 per cent), PPB Oil Palms (42.47 per cent) andFar East Holdings Bhd 38.42 per cent.

On the KLSE yesterday, IOI Corp shares closed 15 sen lower at RM6.00 with2.8 million units changing hands, while PPB Oil Palms closed two sen lowerwith 167,000 shares traded.

Kulim, meanwhile, ended unchanged at RM2.80 with 217,000 shares traded andKLK eased 10 sen at RM6.50 on 529,000 shares done.(The informations and opinions expressed in this article represent theviews of the author only. They should not be seen as necessarilyreflecting the views of Palm News)