KUALA LUMPUR: Crude palm oil (CPO) for third month delivery held above the RM2,630 level late Thursday, after production in Indonesia was seen falling for the first time in 15 years.

At 3.30pm, CPO was down RM1 to RM2,639. Though this was RM14 below the recent year high of RM2,653 on Nov 21, the current price had rallied from the intra-year’s low of RM2,167 on July 29.

Bloomberg reported Indonesia’s palm oil production decline was due to the heavy rains and drought. It said the decline was spurring a rebound in prices from the lowest level in 45 months.

Indonesia’s output was expects to fall 1.9% to 26.5 million tonnes this year, the first decline since 1998.

Analysts had expected the rise in CPO price to boost the share prices of most Malaysian plantation companies whose earnings were hurt in the July-September quarter due to weak prices then.

UOB Kay Hian Research is maintaining its Overweight on plantations as it expects CPO price to gain upside momentum on easing concerns over high inventory, slower production and stable demand.

“The commitments from the top two palm oil producers to raise domestic biodiesel blend will ensure that the increase in palm oil supply in 2014 will be largely absorbed by biodiesel use, and hence keep inventory levels in check,” it said.

UOB Kay Hian said the current good CPO price of RM2,500 to RM2,600 a  tonne could rise next year when demand returns after the winter season in end-February-March 2014.

“The 2014 outlook will be driven by small increments in production and the additional production will be well-absorbed by demand from new markets and applications. Maintain Overweight. We prefer companies with a good mix of young and prime areas for production and earnings growth,” it said.

Source : The Star