KUALA LUMPUR: OIL palm planters can look forward to encouraging palm oil pricing on the back of a strong US dollar and limited supply of the oil as palm trees are still recovering from the El Nino weather phenomenon.
In the past two years, oil palm trees have been bearing less fruit.
This year, palm oil production in Indonesia and Malaysia, which account for 85 per cent of the global supply, is forecast to fall by five per cent to 58.8 million tonnes.
In an interview with Business Times, Malaysian Palm Oil Association (MPOA) chairman Datuk Franki Anthony Dass said next year’s oil palm fruit production should recover from the El Nino but the rise in quantum is difficult to forecast.
“There are still the lagging secondary El Nino effects,” he said.
For the past month, palm oil futures on Bursa Malaysia averaged above RM2,900 per tonne.
“If we look at the movements in palm oil futures, they have a direct relation with the strength of the US dollar. The strengthening of the US dollar is having a favourable impact on palm oil prices.”
Ongoing biodiesel mandates in Indonesia and Malaysia are also fuelling support for palm oil pricing.
This value-adding mechanism has helped bring down national palm oil stocks.
On Bursa Malaysia, plantation stocks are showing an improved performance.
In a note to investors, Public Investment Bank Bhd said many plantation companies are showing better results in the quarter of July to September.
The research house said IOI Corp Bhd, Ta Ann Bhd and TSH Resources Bhd’s financial results are within its expectations while Genting Plantations Bhd posted better-than-expected results, bolstered by a huge jump in upstream plantation business.
TDM Bhd achieved the highest average palm oil price for the quarter at RM2,631 per tonne, followed by Genting Plantations at RM2,617 per tonne while Ta Ann’s RM2,412 per tonne was the lowest.
The plantation sector saw lower fruit production as a result of the lagged effect from the super El Nino.
Only Genting Plantations and Ta Ann harvested more oil palm fruits while Felda Global Ventures Holdings Bhd (FGV), IOI Corp, Sime Darby Bhd, TDM and TSH posted quarter-on-quarter decline in production, albeit at a smaller pace.
TDM suffered the sharpest production drop in oil palm fruits, down 26.7 per cent, followed by Sime Darby (-23.6 per cent). FGV had also seen 14.4 per cent decline in its oil palm fruit production in its latest quarterly results.
The research house upgraded Sime Darby from “neutral” to “outperform” as it sees the likelihood of unlocking potential value via a demerger exercise given the current bullish sentiment for palm oil prices.
“We maintain our call on TDM as we believe it will be able to catch up in the fourth quarter given the stronger palm oil prices.”
It is keeping its “outperform” call on Genting Plantations, with a higher target price of RM12.51.
“We expect to see another round of impressive earnings in the final quarter. Palm oil futures is likely to stay above RM3,000 per tonne due to tight inventories. We retain our ‘overweight’ stance on the plantation sector.
“On the other hand, we revised our target price for FGV from RM2 to RM1.77 as the company will face another loss-making quarter due to its kitchen-sinking exercise,” it added.