Thursday, December 27, 2001 (TheStar) - THE palm oil industry sees betterprospects next year as its fundamentals remain intact – in particular,strong anticipation of higher crude palm oil (CPO) prices boostingearnings of plantation companies, and market talk that new World TradeOrganisation (WTO) member China plans to raise its palm oil import quotain 2002.Market players and analysts are highly optimistic the average CPO pricenext year will likely be around RM1,100 to RM1,150 per tonne, in contrastwith the difficult times this year when the price plunged to a year’s lowof RM663 per tonne in February. Prices have since recovered to aboutRM1,100 per tonne currently.They expect the MPOB's weighted average price for CPO this year to be atRM950 per tonne.PPB Oil Palms Bhd executive director and chief operating officer Khoo KheeMing said: “We look favourably to the CPO price remaining at the currentlevel of RM1,100 per tonne or perhaps better next year as, fundamentally,the situation has indeed improved with higher demand against weaker supplyin the final quarter of this year.’’He expressed confidence that next year “this most badly affected industry”would be able to reap the benefits of the cost-cutting exercises justundertaken.A spokesperson for a leading oil palm plantation company said: “Thedetermining factor for the pricing of CPO next year lies in the policiesand approaches to be undertaken by major importers, particularly China andIndia.’’She said she believed the inclusion of China as a member of the WTO wouldhave a major impact.Instead of its previous passive stance of having a fixed quota valid for acertain period (i.e. every three months), she sees China becoming anactive player, sourcing from various palm oil markets as and when itrequires the commodity.“Personally, I believe this would lead to lesser volatility in the marketand result in the price of CPO strengthening and stabilising in the nearfuture,’’ she said, adding that CPO sellers also expected the market to bebullish next year.“Of late, buyers from China |and India were believed to be asking forprompt oil, which could lead to shipment of oil in the immediate monthssuch as December this year and January next year.’’On the local front, KAF Research plantation analyst Noor Azwa Mohd Noorsaid the market scenario seemed fundamentally sound, with Malaysia’s palmoil production seen declining by 2.1% next year (against an estimated 8.9%growth in 2001), underpinned by continued replanting as well as theexpected tree stress period, which occurs every three to four years.There is also the possibility of weather changes due to the El Nino effectcausing a further reduction in production next year.Palm oil production for this year is estimated at 11.7 million tonnes.The US Department of Agriculture also forecast a tightening edible oilstocks scenario next year, led |by a slowdown in the rate of palm oilproduction.On the demand side, Azwa said she expected China, which is seen increasingits import quota of palm oil by 71% to 2.4 million tonnes next year, toemerge as Malaysia’s biggest palm oil buyer.KAF Research forecasts the |average CPO price at RM1,150 per tonne nextyear and RM1,200 per tonne in 2003.Azwa pointed out that since |1990, there were two occasions when the CPOprice increased by more than 20% year-on-year – in 1994 |and 1998.In both these years, plantation stocks outperformed the KLSE CompositeIndex (CI).If history repeats itself, she added, “plantation stocks should|outperform the CI next year.’’KAF Research’s top plantation picks are IOI Corp Bhd and PPB Oil Palms.