03/12/2011 (The Star) - Palm oil shares had been trending upwards in the past week or two on expectations that there would be a positive spillover effect as crude palm oil (CPO) prices had likely already bottomed out recently.

Among the shares of the more popular planters in Malaysia, Sime Darby Bhd recorded a weekly gain of 2.7% to RM9.12, IOI Corp Bhd added 4.2% to RM4.97 and Kuala Lumpur Kepong Bhd strenghtened 2.8% to RM21.90.

CPO futures for March 2012 delivery closed yesterday at RM3,049 per tonne, gaining 10% from its one-year low of RM2,772 per tonne on Oct 7, 2011 and a whisk away from its high of RM3,248 per tonne in mid-November.

However, it must be noted that most palm oil analysts are still neutral on the sector for raw material prices as a whole but are positive on the prospects of palm oil shares in the medium term.

OSK Research analyst Alvin Tai maintained his neutral stance on the sector and wrote in his report recently that CPO prices were likely to have already bottomed out and he had increased its CPO price assumption for 2012 price targets from RM2,700 to RM3,000.

He said in this report that 2013 was likely to see a higher year-on-year average CPO price which might only be a marginal increase from 2012, a common case in the first year of a new upcycle.

“Against a bullish long-term view, we are maintaining our neutral call on the sector as we expect a price lull ahead of a new upcycle. Investors with a longer-term view may start to accumulate quality growth stocks which tend to be illiquid but possess the alpha,” Tai wrote in his report.

Another analyst with a local bank-backed research house opined that palm oil shares, which had been gaining momentum in the past week in tandem with the rise of the FBM KLCI, would likely benefit from the higher-than-anticipated demand from emerging economies especially China, should its economy not face a hard landing in the face of weakening economic indicators.

“Let's put it this way the demand from advanced economies will likely languish but demand from emerging economies are still strong due to the need to diversify the use of energy sources away from oil to other renewable sources such as palm oil,” he said.

He advised investors to focus on less popularised planters with smaller tracts of land but with solid fundamentals.