By Toby Shelley

The oil palm sector may retain a fusty, colonial image but the surge in demand for biofuels and cooking oil has led to growing interest from British investors in plantation companies.

This month, the London market gained its fourth oil palm planter as New Britain Palm Oil listed on the London Stock Exchange. The shares, which floated at 275p, have risento 368p, giving the company a £534m market value.

The other three London-listed companies are all on Aim. They have shown share prices rise of up to 30 per cent in the past year. With spot prices for crude palm oil trading at more than $900 a tonne, against $600 a year ago, and a long-run average of about $400, this is hardly surprising.

Richard Lucas, an analyst at Ambrian Partners, says there may be a speculative element in prices but he believes the market is well supported at $650 a tonne.

Even if mandatory bio-diesel levels are set lower than expected or other crops are preferred to palm oil, food sector demand is burgeoning in India and China while palm oil’s lack of trans fatty acids has boosted its appeal in the US.

Even if prices do fall, well-managed plantations should continue to prosper by bringing on new acreage and higher-yield varieties, Mr Lucas says. Because of the Asian financial crisis a lot of planting was postponed until 2002 and trees planted then are now producing their first crops.

London-listed companies are in expansion mode. Anglo-Eastern has just acquired 33,000ha of scrubland in Indonesia; REA is adding land as it becomes available and MP Evans has been selling land in Malaysia to concentrate on Indonesia. Before listing, Alan Chaytor, executive director of New Britain, said the company would try to acquire more land from smaller Papua New Guinea producers.

Prospects are good for established producers with funds to take advantage of strong demand but would-be entrants should not expect an easy ride. Asian Palm Oil planned to float on Aim in October, promising low production costs but investors appear to have been put off by the prospect of a three or four-year wait for the first crop.

Charles Hall, an analyst at Panmure Gordon, says raising finance for land is likely to be difficult because of the time between investment and return. Nick Edwards at Mirabaud says lack of faith in the transparency of land deals in some producer countries can be a disincentive to funds, worried that they may be implicated in forest destruction. In spite of the considerable hurdles, 2008 could bring more listings in London, Kuala Lumpur or Hong Kong.

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