DBS Plantation

Plantation Counting the cost of drought

We upgrade our sector call to Neutral and raised our 09F, 10F, and 11F CPO prices by 25%, 17% and 12% to RM1,900, RM2,000, and RM2,200, respectively, as La Nina’s effects in South America have offset a good part of the anticipated jump in US soybean output this year. At current prices, most stocks have more than priced this in and we see downside potential in the near term. When that happens, we recommend investors to pick up on dips. Others have already shown real bargains. We upgraded Wilmar to Hold but recommend waiting for more attractive levels. Our top buys are First Resources and Indofood Agri (please see our initiation report issued separately). Our top Sell/Fully Valued calls are Sime Darby and IOI Corporation on valuation concerns.

Moving into supply deficit this year. The phenomenal 4.3m MT jump in palm oil consumption last year ended up substituting the drop in soybean output and meeting biofuel demand. With drought this year, implied soybean oil supply should rise by 0.3m MT, while palm oil is to add 2.1m MT – against combined demand growth of 2.8m MT (a drop from 5.3m MT last year). Given the slower increase in palm oil supply this year, there should not be much leeway for prices to drop to November low, in our view.

Inelastic demand. There has been a significant reduction in global trade this year, hit by demand drop in manufactured goods and trade finance issues. Despite this, palm oil restocking in major consuming countries since end December proves that demand from the food sector remains largely inelastic. The sector is one of few steady USD earners, amidst the anticipated prolonged weakness in MYR, IDR and SGD.

Take advantage on near term weakness. Having jumped by 20% since end of last year, palm oil prices should pullback over near term recovery in production, while restocking subsides. We expect prices to gradually rebound thereafter with a test case during peak harvest season (September – November), which may yet run the risk of slower than expected production.

[BRIGHT INFO] Weekly Outlook "Palm Oil"

General
JCI Closed lower last week amid lack of positive sentiment on market
CDS still wide and IDR looks under pressure at 12,050
Lower IDR puts companies with USD debt exposure and raw material import under pressure. Lower
IDR could reduce EPS. Lower IDR negative for INDF, UNSP, KLBF (and Pharmaceutical sector), PGAS.
Oil reached $45 a barrel and CPO price looks higher above RM2,000 a ton

Our Focus
AALI
Stockpiles of Palm Oil will decline in February as palm is producing less. Palm oil reserves may have dropped to as low as 1.7 million tons in February from 1.83 million tons in the previous month. Outputs will also likely fall by as much as 10 per cent from 1.3 million tons produced in January. (Malaysian Base).
Total Exports Jan’08 – Dec’08 was 15,409,628 Ton Up 34.60%, Export Jan’08 vs Jan’09 was 1,037,468 vs 1,345,093 Up 29.65 %. (Malaysian Base).
Malaysian sales to China in January-February totaled 530,350 tons, up 43 percent from a year ago, while exports to India more than tripled to 292,790 tons in the period, according to Societe Generale de Surveillance. China said last month it would import a record 5.3 million tons of palm oil this year (Malaysian Base).
Oil palms in Malaysia and Indonesia, the top producers, are stressed from record output in 2008, “weakening productivity.”
With urea prices down 50-60% from their peaks in 3QFY08, CPO production is at 246k tons in 4Q08 vs. 241k in 3Q08 and CPO price has bounce from the low in 4Q08, we expect a recovery in earnings in 1Q09 for QoQ base.
We believe Ebit in 1Q09 was little higher qoq due to higher CPO price around Rp7,100/kg in 1Q09 vs. Rp4,836/kg in 4Q08.
Even sold 7k hectares of its rubber and palm oil estates to Adaro but AALI still keep the right to harvest until 2012.
AALI will getting FX gain on AALI’s USD cash balances.
We believe CPO shares will improve for medium term investment. We agree that 1Q’09 report will be worse than 1Q’08 but we believe that it will be better than 4Q’08.
We are thinking positively on CPO shares, assuming average price for CPO’09 at $650 with efficient operating cost caused by lower fuel price. We believe financial report will improve QoQ in 2009.
We recommend to collect CPO shares, our Top Pick is Astra Agro Lestari and also we like Bakrie Sumatera Plantation.
[Just Personal Opinion]
=====================================================================================
DISCLAIMER: This report is issued by [BRIGHT INFO]. Although the contents of this document may represent the opinion of [BRIGHT INFO]. We cannot guarantee its accuracy and completeness.

Bloomberg Crude May Rally to $55 on ‘Double-Bottom’: Technical Analysis

March 9 (Bloomberg) -- Crude oil may rally to $55 a barrel in New York within weeks if prices signal a “double bottom” by rising above $48.59, according to technical analysis by FuturesTechs.com Ltd.

A double-bottom is a “W-shaped pattern, with two similar lows” and “once the high between the two lows is breached we get a buy signal,” FuturesTechs director Clive Lambert said in an interview today from Southend-on-Sea, U.K.

“A move through $48.59 may trigger that buy signal and a rally with an initial target of $55,” Lambert said. “But while we’re below that there’s a danger we’ll remain rangebound.”

The chart shows that the highest price reached between crude’s lowest points on the New York Mercantile Exchange this year was at $48.59 on Jan. 26.

Oil futures last traded at $45.61 a barrel on the Nymex, having gained 2.2 percent this year. Prices will rebound to average $50 a barrel in the second quarter, according to the median of 33 analyst forecasts compiled by Bloomberg.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

Bloomberg Baltic Dry Index Reaches Highest Since October on Grain Cargoes

March 9 (Bloomberg) -- The Baltic Dry Index, a measure of shipping costs for commodities, rose to the highest since Oct. 9 on demand to ship South American grains.

The index advanced 37 points, or 1.7 percent, to 2,262 points, according to the Baltic Exchange today. Rates to hire so- called panamax vessels, used to haul grain, climbed 3.9 percent and have jumped 59 percent on a nine-day run to $18,562 a day. Larger capesize ships that typically transport iron ore to make steel, shed 0.4 percent to $28,382 a day.

Iron-ore stocks in China, the world’s biggest steelmaker, have jumped 1.2 percent this year while domestic prices for hot- rolled steel sheet, a benchmark steel product, fell 7.7 percent. The steel industry globally accounts for almost half of all dry-bulk cargo, according to shipper Golden Ocean Group Ltd. more...

Associated Press Coal companies shares mixed at the close of trading

Shares of some top coal companies were mixed at the close of trading:
Arch Coal rose $.02 or .2 percent, to $12.55.
Consol Energy unchanged at $24.88.
Massey Energy fell $.15 or 1.5 percent, to $9.98.
Peabody Energy rose $.30 or 1.4 percent, to $22.14.