17 May, 2004 - MALAYSIA’S commodity sector is set to remain strong for therest of the year, supported by increased demand and tightness in supplies.

Industry analysts said prices of palm oil, timber, cocoa and rubber shouldstay at current levels or move upwards over the next few months dependingon global market conditions.

Malaysian Palm Oil Association chief executive M.R. Chandran expects palmoil prices to remain firm as they enjoy the strong fundamentals also seenamong other edible oils.

For the past six to seven months, prices for many food crops were at ahistorical low. (But of late,) people are starting to rediscover thecommodities, he told Business Times.

Chandran said he expects palm oil prices to remain at their current strongtrend as the commodity being a major food item, will always be in demandfrom our traditional buyers such as China, Pakistan, Europe and India.

He said the countries will continue to buy in line with their grossdomestic product growth which will also see a rise in per capitaconsumption in edible oils and fats.

Palm oil prices could also firm up as the Northern Hemisphere enters thesummer season over the next three months. Traditionally, demand for palmoil will pick up and the prices will either hold or strengthen, saidChandran, adding that the increase in demand will come from Europe,Russia, West Asia and the US.

United Plantations Bhd vice-chairman and executive director (corporateaffairs), Carl Bek-Nielsen, said prices of crude palm oil (CPO) futuresmay test the RM2,500-a-tonne level by the middle of this year shouldsoyaoil supply continue to be affected by unfavourable weather conditions.

CPO futures are currently trading between RM1,980 and RM2,000 per tonne.

Golden Hope Plantations Bhd group chief executive Sabri Ahmad expects CPOprices to stay above RM2,000 per tonne throughout the year.

Industry observers and analysts also agreed that a lot of the bullishnesstowards palm oil has much to do with the commodity’s lower price comparedwith soyaoil.

Between January and March 2004, CPO prices in Europe averaged US$527 pertonne compared with soya oil’s US$679 ar tonne, making palm oil cheaper byUS$152 (US$1 = RM3.80).

Analysts continue to pick IOI Corp Bhd, Kuala Lumpur Kepong Bhd and PPBOil Palms Bhd as the favourites due to the companies’ low gearing, goodmanagement and sound operations.

For the timber sub-sector, analysts said a favourable outlook is alsoexpected for the rest of the year, driven by robust demand from furnituremakers, local housing projects and overseas such as China and Japan.

Prices of sawn timber in the export market have surged 14 per cent toRM507.7 cu m in March 2004 from RM443.6 cu m in December last year. In thedomestic market, they surged 18 per cent to RM592.8 cu m from RM504.2 cu mpreviously.

MIDF Securities Sisma Sdn Bhd said in a research note that companies suchas Cymao Holdings Bhd, Lingui Developments Bhd, Mieco Chipboard Bhd and TaAnn Holdings Bhd are expected to benefit from the favourable outlook ofthe sub-sector.

Malaysian natural rubber (NR) prices are also expected to rule firm thisyear, owing to growing demand from China’s automotive sector, thepotential shortage concerns due to the unrest in southern Thailand and thetripartite pact by the world’s top three producers.

China has overtaken the US as the world’s largest rubber-consumingcountry, and analysts expect it to stay at the top spot for years to come,with the rapid development of its car industry acting as the main driverbehind the robust demand.

Overall rubber consumption in China is estimated to exceed 3.3 milliontonnes this year, of which 1.5 million tonnes are natural rubber and 1.8million tonnes synthetic.

National Association of Rubber Smallholders Malaysia president DatukMazlan Jamaluddin said NR prices should stay above the RM4.50 a kg levelin the near to medium term, but not hitting the RM5 a kg mark as thiswould make the commodity lose its price competitiveness over syntheticrubber.

Meanwhile, Malaysian Cocoa Board director-general Datuk Dr Azhar Ismailsaid cocoa prices are expected to stay at the current RM5,000 per tonnelevel for the next two to three years unless political unrest breaks outin West Africa, which is a major source of production.

“However, this good price of cocoa will benefit merely 20,000 smallholdersacross the country because there are only a few companies which growcocoa, such as Teck Guan Perdana Bhd,” said Azhar.

He believes that cocoa smallholders will have a boon time because they areefficient producers, at RM1,800 a tonne, compared with plantationcompanies, whose cost of production is higher.

A civil war and poor harvests in the Ivory Coast, the world’s largestcocoa producer, drove up the price of cocoa beans to 14-year highs ofRM5,700 per tonne in June 2002.

Today, Malaysia has about 45,000ha planted with cocoa, of which 30,000haare worked on by smallholders.

Malaysia’s main commodities include palm oil, timber, tin, NR, minerals,cocoa, pepper and tobacco and export earnings from commodities for 2003are expected to reach RM62.6 billion, up 25.7 per cent compared withRM49.8 billion in 2002.