12//4/06 (The Edge News)  -  Avenue Securities Research has maintained its neutral weighting on the plantation sector, as valuations appear to be closer to historical high due to the anticipation of higher palm oil prices this year.

In a research note on April 12, it said the “strong outperformance” of most plantation stocks over the past 12 months reflects the anticipation of higher palm oil prices in 2006.

It added that there was a month-on-month (MoM) improvement in stock-to-export ratio for palm oil to 1.34 times in March 2006 against the 1.76 times in February.

This was partially attributed to 58.8% decline in palm oil import volumes to essentially normalised levels and 26% MoM recovery in export volumes.

While the current ratio of 1.34 times pointed to a bearish average price of RM1,322 per metric tonne against the current RM1,428, further normalisation of import volumes and rising demands from new biofuel capacities would help sustain the current CPO price, Avenue Research added.

The research house also said that strong demand from China helped shore up the overall export performance of palm oil.

“The stronger than anticipated demand growth of palm oil from China could be attributed to the substitution effect created by lower soya meal demand as a result of lower poultry production,” it added.

Avenue Research reckoned that a larger scale outbreak of bird flu would consequently boost demand for palm oil, whereby the primary component of the crop is oil.