By KATHY FONG

PETALING JAYA: It is definitely the time for oil palm planters to celebrate, given that the crude palm oil (CPO) three-month futures contract price soared to a historic high of RM3,080 per tonne yesterday – nearly quadruple their production costs.

Analysts said even the least efficient plantation companies were making good profits, needless to say the well-managed ones like IOI Corp Bhd and KL Kepong Bhd.

In the spot market, January South closed yesterday at a new high of RM3,090 versus RM3,030 on Monday.

The record high prices are in tandem with the bullish trend on other edible oils such as soybean oil.

The most actively traded soybean contract for May delivery gained 200 yuan, or 2%, to close at a high of 10,146 yuan (RM4,629) a tonne in China’s Dalian Commodity Exchange yesterday.

According to Bloomberg, agriculture products were among the best performing commodities this year. Year-to-date, palm oil had gained 56%, soybean 75% and soybean oil 62%.

The strong crude oil prices, above US$94 per barrel, also supported the upward trend in edible oils prices because the demand for biodiesel is expected to grow when fossil fuel gets more pricey.

Citigroup Equity Research said the correlation between the prices of crude oil and CPO was 0.87 in the period Jan 1 to Dec 9 – the highest over the last 15 years.

The strong and sustainable demand for edible oils is particularly felt in China and India, whose booming economies have enabled their people to be able to afford consumption of more oil and fats.

Apart from food, the rising demand for biofuels that are derived from soft commodities, like corn and rapeseeds, also continues to fuel the spiralling oilseed and vegetable oil prices.

Such strong demand has raised concerns on the acute supply of edible oils in the spot market.

Oil World had predicted tightness and very high prices of oils and fats to prevail from January to September next year because of strong world demand for food (mainly in Asia) and for biodiesel in Europe, the US and South America.

“There are concerns on the supply shock of vegetable oils,” said OSK Equity Research analyst Alvin Tai.

He said crops, such as wheat and corn whose prices had also climbed substantially, were competing for planting areas with soybean.

“Commodities like wheat and soybean are all annual crops. Any reduction in plantation acreage would affect the production volume the following year,” he added.

Tai also noted that the drought in Indonesia two years back would still have an impact on the yield of the oil palm trees in the country.

Given the rising edible oil prices, including CPO, Tai said he was looking at revising the forecast average CPO price of RM2,750 per tonne next year.

“Plantation is one of our key overweight sectors,” he added.

Having seen the substantial jump on CPO price over the past two years or so, there is also rising concern on correction due for the commodity, the price of which has more than doubled since 2005.

Aseambankers Equity Research in fact has a “neutral” call on the plantation sector.

“We think that the upside for plantation stocks is limited. We believe share prices have already factored in the bullishness,” said analyst Ong Chee Ting, who had forecast an average CPO price of RM2,500 next year.

This entry was posted on Thursday, December 27th, 2007 at 12:04 pm and is filed under Palm Oil Prices News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.