29/12/2011 (Bernama) - OSK Research is raising the average crude palm oil (CPO) price to RM3,000 per tonne for next year from the RM2,700 per tonne estimated previously.

It said supply growth will continue to be strong next year, rising by 2.7 million tonnes against the 2.9 million tonnes increase in 2011, boosted by favourable weather conditions, increasing yield from young trees and newly mature areas in Indonesia.

New planting for most big players in Indonesia peaked in 2007 and reached maturity this year, which helped fuel production growth. Production growth in these newly mature areas will continue to accelerate in the next four to five years.

"Hence, we believe that supply will continue to be strong going into next year. The Southern Oscillation Index is now pointing to a mild La Nina, which is also favourable for palm oil production," OSK Research said in a research note today.

It said despite 2011's bumper crop, the drop in production from thereon will be limited. This is because most parts of Kalimantan experienced a decline in the second half of 2011 production due to the tail-end effects of the 2009 drought.

"The lower production means the trees in the area have had their rest and the opportunity to rebuild their reserves," it added.

OSK Research suspects that Indonesia's palm oil production will peak around 2015, given the historical planting, and the fact that most companies had not been able to meet their planting targets since 2008.

"This was made worse by the moratorium imposed on new planting this year.

"Since palm oil is the only major oil, among global edible oils, that has seen growth, the output growth would come mainly from Indonesia.

"Hence, it stands to reason that if Indonesia's palm oil production peaks, global edible oils supply will also hit a peak, and this would have very bullish price implications," OSK Research said.

It said while it is too early to position for the next upcycle, investors should accumulate good growth plantation stocks, which will provide the foundation as they tend to be rather liquid.