Goldman cuts its rating on Sime Darby and Kuala Lumpur Kepong to 'sell,' citing 'near-term risks' to prices of the commodity 
 
24/11/2008 (Business Times, Malaysia) - THE price of palm oil, which has slumped 67 per cent from a March record, is near the end of its decline because supplies will slow and demand for the edible oil will ride out the global slowdown, Goldman Sachs Group Inc said.

The price is “close to a bottom,” analysts led by Patrick Tiah in Singapore said today in a report. “Edible oil demand has remained relatively resilient even during severe recessions.”

The prices of crude oil and other commodities have tumbled this year on concern the worldwide economic slump will reduce demand. Malaysia and Indonesia, the largest producers of palm oil, are felling oil palms and planting younger saplings to cut output. Palm oil is their biggest agricultural export.

The price of the edible oil, based on previous cycles, is mainly driven by supply, Goldman said in today’s report. The replanting will help reduce output, while the yield from plantations is under “stress,” Goldman said. It’s not clear when any rebound will happen, according to the report.
 
Palm oil, used in cooking and to make biofuels, on March 4 reached a record RM4,486 (US$1,236) a metric ton in Malaysia, home to growers such as IOI Corp and Sime Darby Bhd. The commodity today rose as much as 2.3 per cent to RM1,493 and traded at RM1,478 at 10:55 am.

Still, Goldman cut its price forecast for palm oil for the next two years by between 41 per cent and 50 per cent, joining analysts at CLSA Asia Pacific-Markets and UBS AG.

Goldman cuts its rating on Sime Darby, the world’s largest producer of palm oil, and Kuala Lumpur Kepong Bhd, Malaysia’s third-biggest grower, to “sell,” citing “near-term risks” to prices of the commodity.

Sime, which has halved in the past year, gained as much as 2.4 per cent to RM6, and traded at RM5.9 at 11:09 am. Kuala Lumpur Kepong stock rose 3.1 per cent to RM8.25.

Palm oil will probably fetch RM1,000 a ton in 2009, and RM1,250 in 2010, analysts at CLSA said in a November 14 report. UBS on November 6 cuts its price forecast for 2009 by 31 per cent to US$450 a ton. - Bloomberg