28/10/06 (The Star)  - PETALING JAYA: The resurgence of crude palm oil (CPO) prices, which boosted plantation counters in the past trading week, is likely to continue until end-2007.

An analyst with a local research house said the correlation between the prices of CPO and crude oil was diminishing, as expected. While crude oil prices had eased back significantly in the second half the year, CPO prices were still able to rally, he said.

CPO futures contract for January delivery hit the RM1,650 per tonne resistance level on Thursday and breached it yesterday to close at RM1,680.

Considering the benchmark three-month futures almost reached RM1,700 in early August, analysts are expecting prices to again hit at least that level within this year or next.

“There will be an acute shortage of CPO next year,” an OSK Research analyst said.

Biodiesel plants, expected to come onstream at different times next year, would have an aggregate capacity of 1.5 million tonnes a year and were expected to soak up excess CPO inventory that was currently flooding the market, he said.

At last count, the Malaysian Palm Oil Board reported September inventory stocks of processed palm oil at 1.8 million tonnes while inventory for August was at 1.68 million tonnes.

With September traditionally being the peak production month for palm oil, CPO prices are likely to be supported in the next few months as inventory levels fall along with production figures.

“As for Europe, the signatories of the Kyoto Protocol are behind schedule in the reduction of greenhouse gases, so demand for biodiesel would continue to grow regardless of crude oil prices,” the analyst said.

He expects CPO prices would be “a lot stronger than this year”, averaging RM1,750 a tonne in 2007. 

He also estimated a peak of RM1,900 for the commodity in spot selling.

House stock picks include IOI Corp Bhd, Asiatic Development Bhd, IJM Plantations Bhd and Kulim (Malaysia) Bhd, on reasons that “the sector is a 'buy' in general and these are the ones that are strongest.”

Another analyst with a local research house that has an “underweight” call on the sector feels that while there are trading opportunities in the sector, he would maintain its long-term view on the sector.

“CPO prices have been volatile in the past few months and we expect this to be so in the next year as well,” he said.

The research house estimated CPO prices to average RM1,650 to RM1,700 per tonne for calendar year 2007.

However, if prices would sustain above RM1,650 or RM1,700 in the first quarter next year, he said, “then plantation stocks can go up further.”