Salient to Investors:

Dorab Mistry at Godrej Intl said:

  • Palm oil at a 5-year low creates a buying opportunity for plantation and processing company stocks because producers are still making money.
  • Invest in plantations when palm oil prices are low. In Q4, 2008, when in a similar situation with regard to supply, demand and price, palm oil rapidly made itself competitive and exported its way out of a crisis as Malaysian stocks peaked in December 2008.
  • Prefer processing companies which manufacture specialty fats, oleochemicals, biodiesel and own consumer brands. Upstream companies will benefit when the price cycle turns.”
  • Expects prices to drop 9.6 percent to $588 a metric ton in the next few weeks towards Asian growers’ production cost but not below.
  • Full-year output in Malaysia, the second largest grower, will be more than initially estimated, while production at the largest grower, Indonesia, is also ahead of expectations.
  • Stockpiles will continue to rise and peak in December. Chinese imports will remain thin for at least the next 3 months as high-priced stockpiles are used up.
  • After the record US soybean crop this summer, farmers in Brazil and Argentina may switch to soybeans from corn this year. Argentina will devalue its currency to boost its overseas shipments.

Adrian Foulger and Denis Chai at Standard Chartered recommend plantation stocks to profit from a rebound in prices, and say the way to make money in the palm sector is to buy growth operators when prices are low and sentiment is weak.

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