Plantation stocks dragged by palm oil boycott fears

India restricting the purchasing of Malaysian palm oil will negatively impact demand as India makes up a sizeable part of the market, says analyst


PROSPECTS of Indian oil palm traders boycotting or lowering imports of Malaysian palm oil is dragging down the performance of local plantation stocks despite stronger crude palm oil prices.

Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew said trade tensions have investors worried over the potential fallout and its impact on crude palm oil (CPO) prices as India is a major market for palm oil products.

“We tend to observe a drop in the production of palm oil late in the fourth quarter of the year, which is typically a driver of higher CPO prices. However, the latter is being negated by demand concerns (arising from the tensions with India),” he told The Malaysian Reserve (TMR).

“While generally preferring to import CPO as opposed to refined palm oil, India restricting the purchasing of Malaysian palm oil will negatively impact demand as India makes up a sizeable part of the market.”

This could put a cap on a potential upside to CPO prices, Pong said, adding the performance of Malaysian plantation firms on the stock market are usually positively correlated with CPO prices.

Companies that still command growth (even amid depressed CPO prices) tend to trade at a premium but concerns regarding the trade issue may put a lid on investors’ interest for plantation stocks, Pong said.

The plantation index, which tracks the performance of 43 listed plantation firms, gained 15.6% from Dec 18, 2018, to Feb 20,2019, as CPO prices rose 3.5% over the period.

In contrast, the index is down 2.2% since the start of the month despite CPO prices rising 6%, suggesting investors have their eyes on the trade developments.

The plantation index fell 0.24% or 15.77 points to close at 6,623.7 on Monday, with 13 counters in the red, 10 noting gains and 20 closing flat, according to Bloomberg.

Sime Darby Plantation Bhd contributed to the decline after its shares closed 1.45% or seven sen lower at RM4.75 while Innoprise Plantations Bhd noted the largest drop, falling 10.4% or seven sen to 60 sen for the day.

IOI Corp Bhd provided the biggest boost to the index with its shares advancing 0.94% or four sen to RM4.29, while Kuala Lumpur Kepong Bhd rose 12 sen or RM21.74.

Members of Bursa Malaysia’s plantation index had a combined market capitalisation of RM124.8 billion.

On Monday, it was reported that India’s top vegetable oil trade body, Solvent Extractors’ Association of India, had called for its 875 members to stop buying palm oil from Malaysia.

Several Indian palm oil traders are reported to have turned to Indonesia to source their imports in anticipation of curbs on Malaysian palm oil imports. These reports have yet to be confirmed or verified.

India is currently the world’s largest importer of edible oils, while Malaysia is the second-largest palm oil exporter behind Indonesia.

Valued at RM31.05 billion, Malaysia exported 14 million tonnes of palm oil in the first nine months of 2019. India was the largest buyer, importing 3.91 million tonnes or 27.9% of exports.