KUALA LUMPUR: Malaysian palm oil inventory, which has reported gains of 6.5 per cent after two straight months of declines has given PublicInvest Research cause to give the plantations sector an overweight call in its sector update.
Alongside the fast-paced recovery in production, PublicInvest Research said that exports are expected to do well this year on the back of the recovery of regional economic activities.
"In the short-term, exports demand especially from the Middle East and India is expected to pick up ahead of Ramadan festive celebration. We maintain our overweight stance and we like Genting Plantations, Sime Darby, Ta Ann and TSH," PublicInvest Research said in its report.
The firm said that inventories have recovered after dropping for two months.
PublicInvest Research also touched on the matter of certified sustainable palm oil (CSPO) gaining momentum in European Union with the European Parliament passing a resolution to introduce a single-certification scheme for palm oil entering the EU by 2020, to counter the impact of unsustainable palm oil production like deforestation and habitat degradation.
In Malaysia, it said that only the independent small planters, which make up 16.3 per cent of Malaysian total planted area, have no CSPO.
It also noted that it will be more taxing for these small planters as the process of making CSPO will result in additional costs for them.
Additionally, there are also some big planters have yet to achieve 100 per cent CSPO.
"We understand that the local planters are facing a dilemma of producing CSPO as there is no strong demand for CSPO in the market. CSPO generally derives a premium of USD30-40/mt compared to non-certified palm oil," it said.
PublicInvest Research's sector update report also looked at developments in Indonesia saying that palm oil inventories in Indonesia, the world largest producer, dropped for a second month after posting a decline in production.
It added that the Indonesian government is considering lowering minimum reference price that triggers taxes on palm oil exports from USD750/mt to USD700/mt, as per the Board of Indonesia Estate Crop Fund for palm oil.
"The authority is also considering changing palm oil export levy to a progressive rate from the fixed USD50/mt. The changes are set to help boost export tax revenue to fund more subsidized biodiesel. The current biodiesel price formula is based on average CPO price from Belawan and Dumai ports plus value to convert CPO into biodiesel and delivery cost as well," PublicInvest Research said of the developments in Indonesia.