22/11/06 (The Star)  -  PETALING JAYA: Plantation stocks dominated Bursa Malaysia gainers' list yesterday on strong anticipation that earnings by plantation companies would be boosted by the high price of crude palm oil (CPO). 

PPB Oil Palms Bhd jumped 45 sen to RM9.75 while IOI Corp Bhd ended 40 sen higher at RM18.90 after hitting an intra-day high of RM19.10. Kuala Lumpur Kepong Bhd gained 10 sen to RM13.80 and United Plantations Bhd rose 20 sen to RM8.60.

The KL Composite Index closed 2.64 points higher at 1,036.16. Reflecting the gains in the plantation counters, Bursa's plantation index added 83.56 points to 4,125.89.

Analysts said the surge in CPO futures on Monday was due to rash buying on soybean oil markets in China and the futures prices on the Chicago Board of Trade. 

SJ Securities head of research Cheah King Yoong said plantation stocks were broadly higher on prospects of higher earnings for plantation companies.

“We reiterate our positive view on CPO prices, as biodiesel is a viable substitute for mineral diesel and power plants, and will be a clear winner with high crude oil prices,” he said.

“With demand for palm oil expected to be strong, especially with new demand for biodiesel from next year onwards, any slack on the supply side could boost prices,” he added.

Cheah said another major catalyst that could push up prices was the expectation of the El Nino weather phenomenon in Asia, which would affect palm oil output.

The US National Oceanic Atmospheric Administration confirmed on Sept 13 that the El Nino phenomenon had formed and would last into 2007. 

“Simultaneously, palm trees are undergoing a period of biological tree stress, where yields are generally lower. This is expected to continue for a period,” Cheah said, adding that the brokerage remained neutral on the sector.

He said there could be possible supply risks due to tree stress coupled with El Nino but expected the El Nino situation not to be as severe as in 1998.

According to Malaysian Palm Oil Board, inventory for October fell 11.4% month-on-month to 1.59 million tonnes while output dropped 13% to 1.4 million tonnes.

“The price of CPO, which is showing no sign of weakening, has the potential to register further increases as it enters into the new price cycle by year-end,” an analyst said. 

He expected limited downside to CPO’s long-term price trend, given the demand for biodiesel as well as the compulsory labelling of trans-fatty acids in food products in the United States.