MARKET DEVELOPMENT
Palm Oil Prices Close to Bottom of Cycle, Reckons Liberum
Palm Oil Prices Close to Bottom of Cycle, Reckons Liberum
27/08/2014 (ProactiveInvestors.co.uk) - Liberum, while stopping short of a predicting a rebound, does think the crude palm oil price is bottoming outLiberum, while stopping short of a predicting a rebound, does think the crude palm oil price is bottoming out
We may be close to the bottom of the palm oil price cycle, according to City broker Liberum.
The price of a tonne of the food ingredient, which is also used in soap and biodiesel, hit US$713 a tonne last week – its lowest level since 2009.
Expectations of a record harvest of soybeans, which are also used to make edible oil, have prompted the sharp decline.
Liberum, while stopping short of a predicting a rebound, does think the crude palm oil price is bottoming out.
“We expect prices are close to a trough given demand (especially from the biodiesel sector) is likely to be boosted by the low prices but upside will be limited unless soybean harvest forecasts are reined back,” it said in a note to clients.
A rebound in the price of crude palm oil would have a positive impact on the profits and valuations of quoted companies in the sector including New Britain Palm Oil (LON:NBPO) and Ivory coast-focused DekelOil (LON:DKL).
For Dekel in particular, it would provide a boost to a business in the formative stages of development.
Earlier this year, the firm commissioned a new mill - one of the largest in West Africa - and as broker N+1 Singer pointed out last week, the company is already profitable.
The broker forecasts earnings of €2.1mln for 2014, rising to around €12.7mln once the current facilities are fully operational – this is projected by the broker to be 2017.
This, N+1 says, will deliver annual free cash flows of around €12.1mln without the need for further major capex.
The broker also believes Dekel could be attracting the attention from potential strategic investors.
Dekel shares are up 1.85% today, while New Britain Palm Oil is unchanged at 452.5p.
We may be close to the bottom of the palm oil price cycle, according to City broker Liberum.
The price of a tonne of the food ingredient, which is also used in soap and biodiesel, hit US$713 a tonne last week – its lowest level since 2009.
Expectations of a record harvest of soybeans, which are also used to make edible oil, have prompted the sharp decline.
Liberum, while stopping short of a predicting a rebound, does think the crude palm oil price is bottoming out.
“We expect prices are close to a trough given demand (especially from the biodiesel sector) is likely to be boosted by the low prices but upside will be limited unless soybean harvest forecasts are reined back,” it said in a note to clients.
A rebound in the price of crude palm oil would have a positive impact on the profits and valuations of quoted companies in the sector including New Britain Palm Oil (LON:NBPO) and Ivory coast-focused DekelOil (LON:DKL).
For Dekel in particular, it would provide a boost to a business in the formative stages of development.
Earlier this year, the firm commissioned a new mill - one of the largest in West Africa - and as broker N+1 Singer pointed out last week, the company is already profitable.
The broker forecasts earnings of €2.1mln for 2014, rising to around €12.7mln once the current facilities are fully operational – this is projected by the broker to be 2017.
This, N+1 says, will deliver annual free cash flows of around €12.1mln without the need for further major capex.
The broker also believes Dekel could be attracting the attention from potential strategic investors.
Dekel shares are up 1.85% today, while New Britain Palm Oil is unchanged at 452.5p.