Palm oil prices for 2011 will be firm in the first half due to the delayed adverse weather effect on production but a strong recovery in the second, will result in weaker prices, said OSK Investment Research.

“While we continue to place our calendar year 2011 average price assumption at RM2250 per tonne, we believe crude palm oil(CPO) prices could continue to be lifted by momentum in the near term,” it added.

The palm oil price surged by RM170 per tonne yesterday to RM2,930 per tonne based on the Malaysia Derivatives Exchange (MDEX) third-month contract.

“We believe the rise yesterday was a relief rally, as inventory only rose marginally,” according to the research house.

According to OSK Investment Research, the recent strength in soybean oil prices plus the weaker ringgit, had helped normalise the price spread between palm oil and soybean oil to US$136 per tonne as of the end of last week.

“Without this, the rally in the palm oil price would not have taken place.

“This was the widest discount year-to-date,leaving palm oil at its most attractive level against soybean so far this year.
“These factors allowed for the surge in price yesterday,” it explained.

OSK Investment Research has upgraded the target price earnings (PE) for plantation stocks from 15x to 18x against calendar year 2011 earnings, resulting in increases in target prices across the board.

“We continue to favour Indonesian planters such as Golden Agri, Astra Agro Lestari, London Sumatra, First Resources and Kencana Agri as valuations are more compelling,” it highlighted. — Bernama

Source: Business Times