KUALA LUMPUR: Affin Investment Bank is of the view that the long-term outlook for the plantation sector remained bright as key drivers were in place especially for major vegetable oils.
The investment bank also said the sector was well supported with growing world population as well as limited land availability.
"Investors willing to look beyond the second half of 2015 will see reasonable returns to investments," said Affin Investment Bank in a note today.
It expected crude palm oil (CPO) prices to firm up in 2015/2016, based on the still-tight global supply of major vegetable oils in 2014/2015, as well as, further progress in biodiesel adoption in Malaysia and Indonesia.
"We expect a price recovery, as prices below RM2,000 per metric tonne are likely to lead to cutbacks in plantation upkeep and an increase in replanting activities and a slowdown in new plantings," said Affin Investment Bank.
The investment bank also cut its forecast of CPO average selling price to RM2,600 per metric tonne in 2015 and RM2,700 per metric tonne in 2016/2017.
It also downgraded the sector to 'neutral' from overweight.
With the negatives still unfolding, Affin Investment Bank said the short-term outlook for the oil palm plantation sector remained dim.
"But we do not expect CPO prices to trade below RM2,000 per metric tonne for long," it said adding that the cost of production for larger planters might be in the range of RM1,200 per metric tonne to RM1,500 per metric tonne.
For smallholders and less efficient plantation companies, the cost of production could be closer to RM2,000 per metric tonne.
"If prices stay low for an extended period, we may see cutbacks in plantation upkeep, including fertilisation, as well as, increases in replanting activities and a slowdown in new plantings," added Affin Investment Bank.-- Bernama