Plantation Sector - The Nightmare Is Not End Yet

Currently most of the plantation companies' stock prices slump critically. The main business of these plantation companies, is mostly on palm oil operation. The weak stock prices' movement is believed to be caused by the bad performance of palm oil price recently.

Palm oil, the world's most used cooking oil, has been dropping dramatically from the peak of RM3,620 per metric tonne in the early April 2012 to RM2,255 as of today closing price*, which is around 37% drop in half year time. Dorab Mistry, who has traded palm oil for more than 30 years, has lower his forecast of CPO price to RM2,600-2,700 by year end. Most investors are pessimistic on CPO's future as CPO is haunted by numbers negative factors currently.

The recent critical drop of CPO is mainly caused by higher supply of palm oil while the demand on palm oil is slower. The increase of inventory of CPO in Malaysia & Indonesia, the 2 largest palm oil producer in the world, amid weak global demand & faster growth of production in these 2 countries. Meanwhile, the better harvest of soy bean in South America increases the supply of soybean oil causes the slump of soybean oil price as well.

Anyway, currently palm oil is trading at discount of USD373.46 per tonne to soybean oil, the largest discount since October 2008. I think the CPO price is trading at very low price currently. The price may still go down & the trading would be extremely volatile in near term. Though I believe the CPO price may rebound back to RM2,600-2,700 as predicted by Dorab Mistry, I don't see any outstanding result will be announced by plantation companies for the 2nd half of 2012.

*Palm oil price here refers to CPO 3-month forward futures price



Note: The above content is just a blogging activity that purely share my investment thoughts & ideas and should not be used as recommendation to buy or sell any securities. I may already have position in the above securities. Any action that you take from the opinions or information of this blog is solely on your own responsibility. Please consult your investment advisor before you make any investment decision.