December 23 2003 - MALAYSIA’S crude palm oil prices (CPO) are expected toaverage between RM1,300 and RM1,500 a tonne level for the next two years.

Research house K&N Kenanga said CPO’s two-and-a-half-year price rallysince June 2001 could be nearing its peak based on its average historicalbull cycle of between two and three years.

It said it expects an average CPO price of between RM1,300 and RM1,500 atonne from 2004 to 2006.

This puts the current sector price earnings estimate at a reasonablemultiple of 16 times for financial year 2004 compared with current totalmarket price earnings of 14 times, it said in its research note.

The brokerage firm said tightness in the global edible oils supply due tothe shortage in US soyabean output has prompted a rally in the world’s 17vegetable oils (palm oil included) for the past three months.

But we fear this could be the last rally by the bulls. Any outperformanceis seen only for the short term in the case of any situational CPO pricerally.

K&N Kenanga said while the near term demand and supply picture is stillconstructive for price bullishness, the worry is that for the longer term,the present CPO up cycle is already reaching its end.

It said palm oil and soyabean outputs are expected to decline next year onthe back of a crop-damaging heat wave in the US in August 2003 and flatoil palm yields.

The current cheaper price of palm oil at about RM380 to soyabean oil couldspark another rally for palm oil.

However, price of soyabean oil could drop as well due to a possiblebountiful harvest in South America in the second half of 2004.

K&N Kenanga said strong buying of edible oils by China and India this yearhas kept palm oil and soyabean oil demand and prices high amid decliningsupplies amd rallying prices.

However, import growth is expected to moderate considerably for China asoverstocking and a potential economic slowdown occurs. For India, adecline can be expected should there be a stronger than expected domesticoils output.

Meanwhile, prices of CPO futures on the Malaysia Derivative Exchangeyesterday declined on expectations of lower exports for this month.

Spot month delivery January fell RM40 to RM1,765 per tonne, while FebruaryCPO futures dropped RM34 to RM1,761 a tonne.

Active month March CPO futures declined by RM40 to RM1,756 a tonne.

Total turnover decreased to 5,011 lots compared with 5,237 lots lastFriday while open interest increased to 21,140 contracts against 20,893contracts previously.