CIMB Tips CPO Price To Rebound By Year-End

03 Oct 2012

The fear factor is uprooting CPO, with the 25% price slump over five weeks fueled by speculative selling on stock-buildup concerns, CIMB says, noting recent export figures and September-harvest channel checks suggest higher-than-expected buildup.   Malaysia's September production may be up to 20% higher on-month and exports were flattish on-month, indicating Malaysian CPO stocks could rise to 2.5 million-2.6 million tons by end-September, vs CIMB's 2.22 million-ton projection from early September, it says.  "Although the stock level is a record high for Malaysia, it works out to only 1.7 months of average monthly exports in 2012, which is, in our view, manageable as long as demand picks up in the coming months," it says.  "We believe there is sufficient storage capacity but the concern is that buyers may defer purchases." But it keeps the sector a Trading Buy.  "We believe that CPO price will rebound by year-end, driven by palm oil's attractive pricing relative to soybean oil and improving economic viability for conversion to biodiesel."  It plans to review its 2012-13 CPO price forecasts, estimating every MYR100/ton CPO-price change results in 5%-6% earnings downgrades for pure planters under coverage.  It recommends accumulating Sime Darby (4197.KU), Indofood Agri (5JS.SG) and Astra Agro (AALI.JK) on weakness.