18/07/2008 (Bloomberg) - Palm oil stocks including Wilmar International Ltd., the world's biggest trader of the commodity, and IOI Corp. fell after CIMB Investment Bank Bhd. cut its ratings on the industry amid concern costs may increase, hurting profits.

Wilmar was the day's biggest decliner on the Straits Times Index, losing as much as 6.7 percent to S$4.02 in Singapore. IOI, Malaysia's second-biggest palm oil producer, slumped 8.2 percent to 5.60 ringgit at 11:50 am. local time, set for its lowest close since September 2007.

``The grass is no longer green,'' Ivy Ng, an analyst at CIMB, part of Malaysia's No. 2 bank, said in a report today. ``We are turning negative on the plantation sector for the first time in three years'' because of the ``rising regulatory risks and slowing earnings momentum,'' Ng said.

Merrill Lynch & Co. and Morgan Stanley have said investors should sell commodities stocks because demand may decline. Palm oil futures in Kuala Lumpur dropped for a third day today amid concern that supply may increase in the second half.

``People had tied commodity prices to crude oil, and with declining crude oil in recent weeks, people get very concerned,'' said Siswa Rizali, who helps to manage 1.9 trillion rupiah ($208 million) in mutual funds at PT NISP Sekuritas in Jakarta. ``Not only palm oil, but all commodities, including nickel and tin.''

Lower Ratings
CIMB cut its share-price estimates on the palm oil stocks as much as 39 percent. It lowered IOI's rating to ``underperform'' from ``outperform'' and Kuala Lumpur Kepong Bhd. to ``underperform'' from neutral.''

Kuala Lumpur Kepong plunged 7.9 percent, to 14 ringgit, and Sime Darby Bhd. dropped 5.6 percent. In Singapore, Golden Agri Resources Ltd., a unit of Indonesia's largest oil-palm grower, Sinar Mas Group, fell as much as 7.1 percent.

Palm oil for October delivery on the Malaysia Derivatives Exchange fell 48 ringgit, or 1.4 percent, to 3,387 ringgit ($1,045) a metric ton at 11:39 a.m. local time. The most-active contract headed for a second weekly loss.

``Palm oil could decline another 10 percent from here as production may increase in the second half at a time when crude oil prices may ease,'' Ricardo Silaen, an analyst at PT Kim Eng Securities, said by phone from Jakarta today.

Crude palm oil prices have ``stagnated,'' Standard Chartered Bank said in a report today. ``Supply growth and weakening biodiesel demand is helping contain prices,'' it said.

Malaysia's palm oil shares have slumped since the Malaysian government last month imposed a tax on profits of planters to help cut the government's budget deficit. IOI has tumbled 15 percent this week, on course to become the biggest loser on the benchmark Kuala Lumpur Composite Index.

Indonesia's PT Perusahaan Perkebunan London Sumatra Indonesia, the nation's second-biggest publicly listed plantation company, tumbled 5.6 percent to 7,550 rupiah. CIMB cut its rating on the company, as well as PT Bakrie Sumatera Plantations and PT Sampoerna Agro.