The good global economic growth this year should lead to higher consumption of palm oil, MIDF Research said.

The firm said on the supply side, consensus estimate of huge supply growth may not be fully realised due to ongoing labour shortage and the potentially high replanting activity in Indonesia.

The republic plans to replant up to 165,000 ha of oil palm plantation land this year, which according to MIDF Research, could limit the supply surge by between 500,000 tonnes and 600,000 tonnes assuming oil yield of 3.5 tonnes per hectare.

MIDF Research said the European Union’s latest decision to remove duties on biodiesel imports for 13 Argentine and Indonesian producers was positive for crude palm oil (CPO) price.

“We are not surprised by the news as World Trade Organisation has ruled in favour of Indonesia on this issue and recommended changes to the measures in January 2018.

“However, the final decision by the European Court of Justice, which is the highest court in EU, is positive to CPO price as we expect higher demand for palm oil in the biodiesel segment. In the long run, this should lead to lower palm oil inventory level,” it explained.

MIDF Research’s top picks are Kuala Lumpur Kepong Bhd, and Genting Plantations Bhd.

It likes KLK for its earnings resiliency and decent dividend yield of 2.5 per cent.

“We like Genting Plantations as we expect its fresh fruit bunch growth at 13 per cent year-on-year to be the strongest among planters under our coverage. This is due to new contribution from recently acquired estate of 12,893 ha and 5,000 ha coming to maturity in Indonesia,” it added.

By New Straits Times(Published: 22/03/2018)

https://www.nst.com.my/business/2018/03/347963/rosy-outlook-palm-oil-2018-midf-research

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