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Author: Tan KW   |   Latest post: Sat, 19 Jun 2021, 6:22 PM

 

Commodity Super Bull Run: Part 1/2 - Bursa Dummy

Author:   |    Publish date:


Wednesday, 12 May 2021 

 

 

 
 

 

Covid-19 pandemic not only sent the price of medical gloves to the sky, it has also resulted in the surge of almost all commodity price.

As we all know, price is the balance between supply and demand. 

In the early stage of the pandemic, demand was expected to drop drastically as there was worldwide lockdown in which movement was restricted and economy came to a halt.

There was fear of unknown at that time and commodities were sold down panically.

However, China as the world's economy powerhouse, managed to contain the pandemic swiftly. Its economy activities rebounded strongly from Q2 of 2020 which resulted in the recovery of demand.

Furthermore, the pandemic has increased the demand of electronic devices, home appliances and furniture etc as many people started to work and study from home.

Low interest rate and various government stimulus packages across the world also encouraged spending on groceries, cars and real properties.

After a shock in early stage, demand slowly crawled back.

As mining, agricultural and manufacturing activities slowed down due to lockdowns, the supply of commodities dropped.

When the demand is higher than pre-Covid level and the supply is significantly lower, the mismatch between supply-demand widens and commodity price shoots up.

 

 
 

Crude Oil

One of the most "famous" commodity is the crude oil. At one stage US WTI crude oil price fell to negative level in Apr20 in which sellers pay buyers to buy their oil. 

Brent crude oil price fell to a low of USD20/Bbl in Apr20 but has since recovered steadily to pre-Covid level of USD60-70/Bbl, as shown in the 10-year price chart below.

 

       Brent Oil (USD/Bbl) 10-years chart
 
 
Unlike many other commodities which have reached historical high or multiple years high, Brent oil is still far from its 10-year high of USD120/Bbl in 2011 and historical high of USD140/Bbl achieved in 2008.
 
Brent oil is not expected to go above USD100/Bbl anyway. To stay between USD60-70 in year 2021 is good enough while reaching 2018's high of USD80 will be a bonus.
 
A drop below USD60 is very possible though, when OPEC+ decides to ease their production cut.
 
However, when travel ban is lifted across the globe, crude oil demand should pick up fast.
 
Direct beneficiaries of high crude oil price will certainly be upstream Oil & Gas companies such as Hibiscus, Reach & DNEX.
 
Mid stream players will benefit indirectly from more contracts awarded due to increase in O&G upstream activities.
 
Recent oil price recovery is the fastest in the history as shown in line chart below.
 
 

 

Crude Palm Oil

The price surge of crude palm oil can be described in one word: unbelievable. 

Decline in CPO production and expected higher demand from two of the world's largest CPO importer China & India play a part in the price rally.

 

       Palm Oil (MYR/T) 10-years chart
 
 
From below RM2,000/T exactly one year ago, palm oil price has surged to historical high of RM4,500/T now. Its previous historical high was at ~RM4,000/T in 2008.
 
There are many upstream oil palm plantation companies listed in Bursa Malaysia. Most of them have already enjoyed a good year in 2020. If the CPO price stays above RM4,000, then surely year 2021 will be even a better year.
 
The question is, how long can the CPO price stay above RM4,000/T?
 
Earlier in the year industry experts have forecast CPO price to range between RM3,320 & RM4,113 per tonne in 2021, and will soften in the second half of the year.
 
Despite the spike in CPO price, plantation stocks seem to be not that popular among investors, perhaps the attention has been hijacked by gloves stocks and then tech stocks.
 
Increasing CPO price might not guarantee increasing profit for a plantation company. It depends on the volume of FFB (Fresh Fruit Bunch) & CPO produced and sold.
 
The lack of manpower, bad weather and unfavourable age profile of oil palm trees will negatively affect the production of FFB.
 
If the average CPO price increases by 20% but the volume sold decreases by 20%, then there will be no significant increase in profit.
 
Nevertheless, plantation companies will have good days ahead, with lots of cash too.
 
 
Soybeans
 
As a competitor to palm oil, the price of soybeans also staged a sudden surge since mid 2020 to come close to its historical high.
 
       Soybeans (USD/Bu) 10-years chart
 
 
 
Corn 
 
Soybeans and corns are important crops to the US. The price chart of both commodities are quite similar in which corn price also threaten to break its historical high.
 
Corn price has steeper rise in the year of 2021 as its price has gained more than 50% YTD compared to soybean's 25%.
 
       Corn (USD/Bu) 10-years chart
 
 
Apart from being used as food ingredient, soybeans and corns are widely used as animal feeds.
 
One of the important reasons of their price surge is due to sudden surge in demand from China who is expected to recover fully from African Swine Fever in 2021. China has lost almost 50% of its swine population to African Swine Fever since 2018.

High soybeans and corn price is no good news to poultry farming industry in Malaysia as both are used as chicken feeds and make up around 70% of the cost.

Thus, LHI, Lay Hong, Teo Seng, LTKM, PWF, CAB and QL will surely face increasing cost pressure.

 

Rubber

Once an important commodity for Malaysia, rubber plantation is not that popular nowadays. Thailand, Indonesia and Vietnam are the 3 largest natural rubber producing countries now.

       Rubber (JPY/Kg) 10-years chart

 

As we can see from the price chart, rubber price has increased more than 100% from its low in mid 2020. Current price of JPY250/Kg is higher than year 2018 & 2019.

Again, strong demand from China is cited as the main reason for the price increase.

There are a few listed companies with rubber plantation but I don't think the profit contribution will be of any significance. 

The cost of manufacturing rubber gloves will be higher though.

 

Naphtha

Naphtha is a liquid petroleum derived from crude oil so its price tends to follow crude oil price. One of its many uses is as raw material of plastics.

       Naphtha (USD/T) 10-years chart
 
 
Without exception, the price of Naphtha recovered from its low of USD150/T in mid 2020 to USD600/T now.
 
Current level is slightly higher than 2019's average of USD500/T but still lower than 2018's peak of USD700/T.
 
LCTitan uses Naphtha as its main raw material to produce resins used in plastic products manufacturing (HDPE, LDPE, PP) and nitrile gloves (Butadiene).
 
While LCTitan might not enjoy the low Naphtha price environment for too long, plastic products manufacturers will not be able to enjoy low resins price for long too.
 
Companies involved in plastic packaging include Scientex, Thong Guan, BPPlas, SCGM, SLP, Tomypak etc while companies in plastic injection moulding include ATAIMS, VS, SKPRes, EG, Geshen, PIE etc.
 
Rising resin price will reduce their profit margin unless they can pass the cost to their customers.
 
 
       LLDPE price chart (CNY)
 
 
 
Lumber
 
Quietly, lumber or timber price surged almost 6x from USD260 in Apr20 to USD1,600 in May21. Will logging companies in Malaysia receive a windfall?
 
 
       Lumber (USD/1000 board feet) 10-years chart
 
 
Listed logging companies that I know include Ta Ann, Timwell, WTK, Subur, JTiasa, BTM, Minho and GPharos.
 
It seems like only Timwell is pure upstream player while the others have other businesses such as downstream wood manufacturing, oil palm plantation, property development etc.
 
From a quick check on their most recent financial results, I think most of them registered loss in timber division even though lumber price was already very high in the second half of 2020. 
 
The prospect given on timber industry from most companies was quite negative.
 
Now lumber price has jumped even higher in Q2 of calendar year 2021. Can those companies do well this time? 
 
Ta Ann, WTK, Subur & JTiasa have both oil palm plantation and timber business. They must be very happy to see both commodity price breaking new high.
 
 
 
Particleboard
 
From the price chart below, it seems like the price of particleboard & fiberboard also rise significantly in the past one year.
 
       Hardboard, Particleboard & Fiberboard Products 10-years chart
 
 
Price chart of plywood also shows similar trend as below.
 
       Plywood 10-years chart
 
 
However, medium density fiberboard (MDF) does not seem to rise that much according to the chart of MDF price below.
 
 
       MDF 10-years chart
 
 
Listed particleboard/MDF manufacturing companies include Evergreen, Hevea, Mieco, Dominant etc, while FLBhd, JTiasa & Annum (previously Cymao) etc are involved in plywood manufacturing.
 
Their raw material cost should be higher due to higher lumber price but they can sell their products at higher price as well.
 
The share price of those logging, plywood & particleboard companies have started to go up in the past 1-2 weeks, only to succumb to recent fall in general market.
 
Will they resume their upward movement when the fear of MCO 3.0 starts to wane?
 
For downstream furniture companies such as Latitude, Pohuat, Liihen, Homeriz, Jaycorp, Wegmans & Spring, their raw material cost will be higher as well. 
 
Since the demand of furniture seems to be high especially in the US, they may pass some cost to their customers.
 
 
 
Wood Pulp
 
Wood pulp is used to make paper. Its price has dropped 35% from its peak in early 2019 to reach its low in the end of 2019.
 
Its price stays low throughout 2020 and started to move upwards since the beginning of 2021.
 
 
       Wood Pulp 10-years chart
 
 
Beneficiaries of low wood pulp price include NTPM, Wangzng, and paper packaging companies such as Muda, Master, PPHB, Orna and Boxpak. 
 
Paper & plastic packaging also contribute slightly to Dnonce, Magni & MFCB.
 
Nevertheless, recent recovery in wood pulp price might add some pressure to those companies. Hopefully it will not shoot up like other commodity and can stay below 2016's level.
 
 
When raw material price is high, logically we can expect price increase in the end products. Isn't it inflation?
 
I just share my view on current commodity price movement and write it down here so that I can refer to it in the future if needed.
 
I might be wrong and the price charts here might not be accurate.
 
In the second part, I will continue with commodity price of metals.
 
 

 

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  calvintaneng likes this.
 
calvintaneng Good one

Of the above commodities Lumber has gone up the most at more than 300% from you

But from historic low of Usd200 lumber is up a spectacular 800% to over Usd1,600

Ta Ann is the Taiko champion for lumber by ownership

Wtk is a smaller version

Tsh apart from having Palm oil lands in Indonesia also got Forest concession of over 200,000 acres

Tsh exports it's furniture product to USA through its private delisted Ecowood

The biggest Forest concession holder is Jtiasa (Giant Treasure ) Jtiasa has 206,000 acres of palm oil lands in SARAWAK and some timber lands as well

The biggest hidden surprise is Jtiasa Forest concession lumber lands of about 2 Million acres large.

It is 11 times the Size of Singapore according to Jtiasa Company Website

11 times the Size of Singapore ?

That is mind blowing

No wonder Calvin call Jtiasa the Giant Treasure
13/05/2021 9:03 AM
calvintaneng Correction

Singapore land mass is 180,000 acres

11 times is 1,980,000 acres or near 2 million acres

So Jtiasa forest concession is not 1 million but almost 2 Million acre strong
13/05/2021 9:07 AM
brian3381 Buy buy buy plantation n timber
13/05/2021 10:37 AM
stockraider Remember 2 of the world most richest & savvy investors w.buffet & bill gates like investing in farmland now mah!

U can emulate them now too mah....!!

Thats why the 2 richest savvy investors have taken note the point of concern that palmoil & commodity price cannot going up forever like the case of glove & eventually the commodity price will also fall 1 day mah!

To address this issue or concern w.buffet & bill gates, say buy farmland & palmoil plantation, even the commodity price fall, u still have great protection on the value of cheap plantation land & farmland mah..!

If u buy into cheap land, u have both margin of safety accorded by cheap land plus prospect of reaping great profit from high palmoil price loh!

Thus u should Quickly Buy into palmoil plantation now, b4 its price shoot up mah!

Time to be a little bit more contraian in view of mkt at reasonable high level mah!

Warren buffet says inflation is definitely coming in view of low interest interest and speculative sign such as bitcoin, rubbish stock price run up sky high and unrealistic stock valuation & expectation and now raw commodities price run up mah!

Bill Gates already bought alot of farmland at low in preparation & in anticipation for the coming armmagedoom coming mah!
Why would one the world tech best richest owner switch alot of his investment into farmland, this bcos farmland or value real estate if it is bought at reasonable low price, u cannot go wrong over longterm bcos the availability of land is limited, u cannot manufacture land like bitcoin mah!

Coming back to msia the equivalent to farmland is oil plantation, u still can get it real cheap & it is paying u reasonably good dividend loh...this is the best defensive & offensive play like bill gates and warren buffet had highlighted mah!


As calvin sifu said timber is at record price & palmoil at record price surely some optimism will spillover to plantation & timber share price mah!

But this up 1 to 2 sen is chicken feed mah, why up so little leh ??

Timber & palmoil share r suffering from lack of production mah and also huge impairment losses on its assets mah & previous falling share price mah!
Thus they are jittery on recovery of palmoil & timber share loh!! They want to see actual profit b4 jump in loh!!
That means if u base on profit...as indicator that means the share price will be lagging loh!

Then why promote Wtk leh ??
1. The owner , directors and insiders already accumulating quietly without fanfare mah!
2. The palmoil & timber production volume of wtk, mhc, jtiasa, boustead, ijm plant already creeping up loh...this is further support by the record price of its commodities. Just imagine u have higher prices & higher volume....that will be a very important sign of higher big profit coming mah!
3. The share price already corrected over 3 yrs of downtrend previously, when there is a big shakeout of all the weak holders...u can only grow more optimistic as time past by loh!
4. Wtk is sitting on some prime land that invested at a very low cost near major town & city, they are good development mah!
5. With all the liquidity & quantitative easing & low interest rate environment, u can see big inflation will be coming loh...!! Wtk in commodities business plus very big cheap land bank is a very good inflation protector mah!

Based on the above i think wtk , jayatiasa & ijmplant is the best pick to make profit & this is concur by sifu calvin findings also mah!
13/05/2021 11:07 AM
calvintaneng Why so quiet in commodities discussion ?

All stuck in overvalued tech stocks, aluminum hype, glove or pump and dump lapsap ??

Is that the reason why 90% are disinterested in this once a century commodities superbull run time
13/05/2021 12:54 PM
stockraider The strategy is plain simple, just buy commodity raw material stocks while the price still very cheap loh!
13/05/2021 1:00 PM
Stockisnotfun Aluminum and steel is not commodity? That's why Kyy explained their selling prices has up due to inflation.
13/05/2021 1:05 PM
stockraider Of course these are commodities too mah!

But what is the ultimate raw materials for these 2 products leh ??

Alum bauxite & Iron Ore which need to mine = equivalent to Palmoil plantation loh!

Msia have not much iron ore & alum bauxite mine, thus we do not really benefit from iron & aluminum price run up mah!

We buy aluminum & steel from others, Once our cheap inventory run out, we still need buy at a higher price loh!

Unlike palmoil....we grew ourselves thus we have ample raw material loh!

Posted by Stockisnotfun > May 13, 2021 1:05 PM | Report Abuse

Aluminum and steel is not commodity? That's why Kyy explained their selling prices has up due to inflation.
13/05/2021 1:16 PM
henry888 Buy early before the stock price going higher or even limit up. Case example is MSM which price had been below 0.600 for quite sometimes. Now is rm1.62, highest RM2.00++
14/05/2021 8:03 AM
Bgt 9963 Good morning...!
14/05/2021 8:50 AM
Up_down No local mainstream medias has reported spike in prices of log, plywood and particle boards. Lagging news?
14/05/2021 1:45 PM
Up_down WTK's main business is timber harvesting and processing. Its plantation performance can't even match with small player like PLS plantation which has been making profits. Not to say that PLS Plantation mature areas is about 10% lower than WTK.
14/05/2021 1:59 PM


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