Palm oil seen leading plantation sector rebound

PETALING JAYA: The plantation sector is expected to make a comeback after two years of a downcycle, as crude palm oil (CPO) prices rebound gradually in anticipation of falling global palm oil inventories, according to PublicInvest Research (PIVB Research).

The research house is upgrading its sector call to “overweight” from “neutral” in anti-cipation of an upward trending CPO prices.

“We raise our average CPO price assumption from RM2,200/mt to RM2,400/mt in 2020, which is a 15% increase from prevailing market prices. We expect CPO prices to start rising towards end-2019 after the peak production season is over,” it said in its note today.

PIVB Research noted that a decline in global palm oil inventories is expected in 2020 on the back of slower palm oil production growth, higher biodiesel consumption and stronger demand from China and India.

“We project Malaysia’s palm oil inventories to fall to two million metric tonnes by mid-2020. Meanwhile, inventories in Indonesia are likely expected to inch down to about three million metric tonnes,” it said.

Palm oil production is expected to be weak due to a number of factors.

“We suspect smallholder plantation, which makes up 17% of Malaysia’s and 40% of Indonesia’s planted area, have cut down the fertiliser application over the last one year due to lacklustre CPO prices. The impact could pose a threat to the national production as it could cause a significant reduction in bunch weight and fruit abortion over the near-term.

“Ripening of fruit bunches should also slow down, making a longer period needed for harvesting. In addition, the prolonged dry weather period during May-Sept could affect the nutrient uptake and cause moisture stress in palms. Depending on the severity, the lagged effect on the production will be seen two years later,” PIVB said.

However, a higher demand from China and India is also expected, due to the favourable import duty policy in India while China has been hard-hit by African swine flu, resulting in weaker demand for soy meal, which is the main feed for their farming industry.

“Consequently, it makes it less appealing to buy soybean for crushing purpose and palm oil would be the most suitable replacement for soybean oil,” the note said.

Meanwhile, Indonesia’s push to increase its domestic consumption of palm oil with a higher biodiesel mandate can generate additional 2.5 million palm oil demand.

“The imposition of anti subsidy duties on Indonesian biodiesel exports by the EU allows Malaysia to take away some market share from its counterpart. Malaysian biodiesel exports registered an impressive 33% year-on-year growth.

“Domestic consumption under the B10 mandate will be extended to heavy vehicles next year, bringing the total biodiesel demand to 1.6 million mt from 1.3 million mt,” it said.

PIVB’s top picks for the sector are Kuala Lumpur Kepong Bhd, Genting Plantations Bhd, TSH Resources Bhd and Ta Ann Holdings Bhd.

Bursa Malaysia ends lower amid falls on Wall Street

KUALA LUMPUR: Bursa Malaysia ended lower today as profit-taking persisted on the broader market, tracking the bearish performance on Wall Street, dealers said.

At 5pm, the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) was down 0.91% or 14.54 points to 1,574.90 from Tuesday’s close of 1,589.44.

The index, which opened 0.59 of-a-point easier at 1,588.50, moved between 1,574.90 and 1,589.06 throughout the day.

The market breadth was bleak as losers led gainers 516 to 264, with 417 counters unchanged, 762 untraded and 19 others suspended.

Turnover expanded to 1.85 billion shares valued at RM1.44 billion from 1.79 billion shares worth RM1.26 billion yesterday.

The FBM Palm Oil Plantation index fell 1.75% or 202.81 points to 11,352.94. The oil palm plantation sector came under pressure on news that Indonesia had identified six Malaysian-linked companies as being responsible for open burning which contributed to the bad haze in the region.

Among the plantation companies, Kuala Lumpur Kepong fell 26 sen to RM22.92, Sime Darby Plantation declined eight sen to RM4.75, Ahmad Zaki Resources Bhd and TDM each dipped half-a-sen to 34 sen and 16.5 sen respectively, and IOI Corp lost 14 sen to RM4.29.

Meanwhile, on the local front, Phillip Capital Management senior vice president (investment) Datuk Dr Nazri Khan Adam Khan said Malaysia’s manufacturing Purchasing Managers’ Index (PMI) improved slightly in September but remained under pressure.

The September manufacturing reading stood at 47.9, a marginal increase from August’s 47.4 level, signalling improvement by the rise in new orders and output indices amid a challenging business environment.

At the current levels, the PMI is broadly indicative of annual gross domestic product (GDP) growth of between 4.5% and 5% this year, according to the IHS Markit Malaysia report.

“However, it remains in a contractionary mode for the 12 straight months and is unable to uphold the domestic market from trending lower,” he told Bernama.

On the technical front, Nazri Khan said the FBM KLCI showed a potential extension to the current correction as the immediate bias was favouring more to the bearish side.

“Overall, we remain cautiously optimistic on the domestic financial market as weak performances in the global economy brought by the trade feud has slowed down the major economies, which weigh on local growth due to Malaysia’s high exposure to external trade,” he added.

Among the heavyweights, Maybank fell six sen to RM8.53, Tenaga declined 10 sen to RM13.60, Public Bank slipped 30 sen to RM19.70, PChem eased five sen to RM7.46 and IHH slid four sen to RM5.64.

As for the actives, VSolar was flat at 7.5 sen, Armada eased one sen to 31 sen and MNC gave up two sen to 27 sen.

The FBM Emas Index shed 86.09 points to 11,149.93, the FBMT 100 Index sank 86.26 points to 10,981.04 and the FBM Emas Shariah Index was 82.52 points weaker at 11,719.38.

The FBM 70 dropped 46.85 points to 13,886.14 and the FBM ACE erased 15.78 points to 4,516.04.

Sector-wise, the Financial Services Index weakened 143.15 points to 15,223.31, the Plantation Index was down 101.41 points to 6,669.33 and the Industrial Products & Services Index was 0.63 point easier at 152.57.

Main Market volume decreased to 1.04 billion units worth RM1.30 billion from Tuesday’s 1.15 billion units valued at RM1.18 billion.

Warrants turnover, however, widened to 256.05 million valued at RM46.43 million from 101.19 million valued at RM9.8 million yesterday.

Volume on the ACE Market rose to 552.70 million shares worth RM85.38 million from 536.82 million shares worth RM78.19 million on Tuesday.

Consumer products and services accounted for 136.46 million shares traded on the Main Market, industrial products and services (159.71 million), construction (80.09 million), technology (102.61 million), SPAC (nil), financial services (27.83 million), property (73.23 million), plantations (15.00 million), REITs (27.25 million), closed/fund (248,000), energy (242.43 million), healthcare (27.48 million), telecommunications and media (101.99 million), transportation and logistics (31.87 million), and utilities (16.35 million).

The physical price of gold as at 5pm stood at RM193.23 per gramme, up RM2.42 from RM190.81 at 5pm yesterday. — Bernama

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