21/07/2008 (Bloomberg) - IOI Corp. fell for a sixth day to its lowest in more than ten months in Malaysian trading, pacing a slump by the nation's palm oil producers amid concern that demand for biofuels may decline after crude oil dropped.

IOI, Malaysia's No. 2 palm oil producer, dropped 1.8 percent to 5.50 ringgit, its lowest close since Sept. 10. Kuala Lumpur Kepong Bhd., the third-biggest, lost 2.2 percent to 13.50 ringgit. Sime Darby Bhd., the biggest Malaysian stock by market value, declined 1.9 percent to 7.60 ringgit.

The sell-off in plantation stocks which dragged the benchmark Kuala Lumpur Composite Index to a 19-month low will continue, said Jason Chong, chief investment officer at UOB-OSK Asset Management in Kuala Lumpur. Palm oil futures slid for a fourth day after crude oil fell to a six-week low on July 18, reducing the appeal of palm oil as an alternative fuel.

``Because it's very well-owned by foreign investors, they've only started to sell now, I won't be surprised to see more downside,'' said Chong, who helps oversee $600 million at UOB-OSK Asset Management. ``People are saying that commodities prices will come off, and oil is basically taking the lead.''

CIMB Investment Bank on July 18 cut its rating on the plantation industry to ``underweight'' from ``overweight,'' saying regulatory risks and rising costs will hurt profits.

Palm oil for October delivery on the Malaysia Derivatives Exchange declined 114 ringgit, or 3.4 percent, to 3,278 ringgit ($1,012) a metric ton, its fourth day of decline.

`Remain Positive'
PPB Group Bhd. declined 1.1 percent to 8.90 ringgit, while Asiatic Development Bhd. lost 3.2 percent to 6.10 ringgit.

To be sure, the ``massive sell-down'' doesn't change the industry's outlook, analysts such as Tan Ting Min of Credit Suisse Group said.

The fundamentals ``remain positive'' and palm oil stocks will outperform over a 12-month view, Tan said in a report today. ``There is a real shortage of edible oils in the 2009 season, as global stock-to-use ratios remain very low.''

She maintained her ``overweight'' rating on palm oil stocks, saying it's ``one of the few ways to hedge against rising inflation.''

Merrill Lynch & Co. today raised its crude palm oil price target for 2009 by 21 percent to 4,000 ringgit a ton, saying ``fundamentals should prevail.''